How to Evaluate SaaS Payment Providers
We at Scruddle are hard at work, continuously building new and deploying new features into the beta site. Currently, our challenge is to identify and implement a Software-as-a-Service (Saas) that handles subscription payments. After all, why spend time building something that other people are (1) already doing, and (2) probably doing better than you can or want to?
I evaluated 4 services, based on suggestions in this article on TechCrunch covering how to build a minimum viable product. They are:
Chargify (http://chargify.com/)
Recurly (http://recurly.com/)
Spreedly / Pin Payments (https://spreedly.com/)
CheddarGetter (https://cheddargetter.com/)
Scruddle is a freemium service, so when users can sign up, they will have a 1-month trial of Scruddle Premium, but if they choose not to pay for it, they still have access to Scruddle Basic. This means the subscription service will still have record of non-paying customers, making it easy if they decide to upgrade again.
This detail about the non-paying customers is important, especially for any start-up entertaining the freemium pricing model. Based on feedback from other start-ups, only 3% of your customers are going to upgrade to a paid subscription or membership. This means out of 1000 customers, only 30 are going to be paying. We'll use this assumption when calculating costs.
Also, Scruddle Premium subscribers can add additional social, email, and news profiles, beyond the standard quota. The subscription service will need to be able to support those additional features, and handle the billing each month.
Finally, we need to have environments configured for development, beta (testing), and production (live). This enables Scruddle to build for future features while avoiding impact on current customers.
Comparing Cost and "Profit"
When selecting the provider for something as critical as subscription payments, the lifeblood of this start-up, we would be remiss by not forecasting the true cost of each available plan. I used an Excel spreadsheet (download here) to plug in the fine print from each of the subscription providers, based on criteria and assumptions for Scruddle.
Number of non-paying customers
The non-paying (NP) customers are using the Scruddle Basic, but as mentioned above, we still carry their information in case they upgrade, or we provide for them another trial. The transaction revenue for Scruddle Premium is $4 per month. This does not include users that add additional social, email, or news profiles, although I will build that out later for a blended monthly transaction price.
Paid customer count is 3% of NP customer count
For every provider, I needed to capture the cost calculation inputs:
Cost Per Additional Customer
Included Non-Paying Customers
Cost Per Non-Paying Customer
% and/or $ Cost Per Transaction
Once the inputs are plugged in, both for Scruddle and for cost calculations, I can calculate the monthly cost, which is:
Add'l Cust. Fee + Add'l NP Cust. Fee + Txn Fee
Once we have the monthly cost, our profit/loss is calculated as:
Gross Revenue - Monthly Cost
That's it! Using these numbers, we can figure out how long before the subscription payment feature no longer costs money. (Obviously, this is not total business P/L, as other expenses and revenue streams are not included.)
It is particularly useful to visualize the data, based on your customer acquisition targets. As you can see, Spreedly, Recurly, and CheddarGetter look very appealing.
Now that we understand price, we need to verify features. In Scruddle's case, we need the following:
Multiple top-level sites for our different environments (development, testing, production)
Add-on features, in addition to basic plans (for each site)
How do the candidates fare?
Recurly allows only 1 top-level site, and no add-ons
Spreedly allows multiple top-level sites, but no add-ons
CheddarGetter allows multiple top-level sites, and has add-ons in the form of tracked items (e.g. "usage")
Chargify allows multiple top-level sites, and has add-ons
Whether your start-up has the same requirements may not be important, but this information can be useful. In our case, it seems like Chargify will be the best option, strictly because of the features.
For Scruddle, we have to strike a balance between features and cost. Still, this has been a useful exercise as we map out each and every expense we expect in our forecast.
If you have any questions or thoughts on how I did this, or if you have suggestions for other subscription payment providers (even start-ups), I'd love to hear about it.
Mark Doyle, Founder & President
@mark_doyle_ftw
