Explanation of Fee changes at PPH
We recently introduced our new pricing, the rationale of which we have explained a few times already in previous posts. In short: to align our interest with that of our most loyal users who bill / buy regularly via PPH. In this post I aim to address some (ill-conceived I believe) concerns that the new pricing is a fee hike, when in fact it’s a drop. I explain why below.
As a recap: the way our new pricing works is that we charge a 3.5% fee on work billed and paid (instead of previously 10%) apart from the first £175 in aggregate in any given month. In other words: rather than have a flat 10% fee regardless of whether one bills £10 or £10,000 in the month (which makes little sense) we inverted it such that we charge a rock bottom fee of 3.5% past a certain threshold (or ‘cliff’). Below the threshold a higher fee applies which ensures that we sustain a reasonable margin to keep the business growing, whilst deliver more value to our loyal users.
In short: we went from a flat fee where everyone pays the same come what may to a ‘the more you bill the less you pay’ scheme. We tweaked the amounts to come up with something that we think delivers best value to our regulars. And this is how we came up with the figures.
The average amount billed via PPH per user per month is £330. So we set off asking: how do we set the three variables at play here (the fee pre and past the cliff and the amount of the cliff) such that the average user is better off, and then past that point the most loyal users get increasingly better returns?
This is how we came up with the 15%, the 3.5% and the £175. As you can see from the chart above which shows how the monthly fee varies with the amount billed, with this new pricing we achieve just that. At the previous fee of 10%, the cutoff point is in fact £310 which means that any billing past this amount delivers better value to the user. So in fact more than half our billers are better off with this new pricing, and the most loyal users who bill in excess of £1000 per month are way better off without having to commit to any fixed costs or subscription schemes.
One caveat here to say: some users naturally will be comparing this new scheme with the old Gold and Platinum membership which we announced abolishment of a few months ago. I should add here that this is not a valid comparison for a few reasons. First, the Gold and Platinum scheme never really worked, as proven by the low uptake. And this partly because the scheme came with a fixed cost which most people don’t like, and goes against the ‘pay on success’ ethos of PPH. From our top billers less than 1 in 3 where Gold and Platinum, and from those a few would ‘start-stop’ it intermittently to avoid paying the fixed costs. Overall less than 0.3% of our user base took it up. So comparing something which is now designed to scale with something that never really took off is – in my view- a lose-lose argument.
I strongly feel and the chart I attach mathematically demonstrates in fact that we have innovated to create something that works better than what we had before, and is in fact the most competitive fee structure out there. More aligns us with our most regular users – as it should given that they are the ones who build our business. PPH is not built or designed for the ad hoc user; it’s designed for those who build up their business sustainably, both as buyers and sellers. That is and always has been our mission. And this new fee structure serves it better.
Its also worthy to note that the £175 cliff is essentially a day’s work for those regular users (given the average rate on PPH at £22). So seen differently what our new pricing enables is people to incur a fee for a day’s work only and the rest of the month is virtually at cost. At 3.5% it would cost most Sellers more to process payments consistently themselves once the administrative cost and risk of non-payment is factored in.
Coupled with the fact that this comes with a whole support function that PPH delivers which t includes 24-7 customer service, daily payment processing, dispute mediation, and each time you get paid you build up your profile for further future success, I believe – and I am confident our users will align to this view – that this is great value.
Regarding a few other amendments we made and are making:
- VAT (in UK) / Sales Tax recharge: we would love to operate in a world without Tax. But we cant. Unfortunately it’s a government requirement. However the good news is that it’s a business tax and is supposed to be business neutral which means that if VAT registered you can claim it back via your quarterly VAT returns. Virtually all business services quote their fees net of VAT as the true cost to the customer is the net cost. Please note that our commission invoices will only include VAT if the Seller is in the UK or in the EU and does not provide a valid VAT number (which qualifies them for a double-taxation exemption). Sellers outside of the EU will not incur a VAT charge
- Introduction of ACH: payment by BACS in the UK has been by far the most popular to date. We have now introduced ACH which is the US equivalent which means we can deliver free payment processing to our UK and US Sellers. However if you opt to be paid by Paypal we recharge the fee we incur as at 1.9% that is a big part of our reduced margin
- A commitment to making payments faster: we have now introduced daily payment processing, and will be making further enhancements to make payments faster by improving fraud checks and ramping up on resources. We are the only company in the space right now that processes payments daily, and we will carry on investing more in delivering faster and safer payments to you.
Lastly: as of last week, I have personally started holding video-chats with our users via Google Hangout. As you will note from some of the tweets these had a significantly positive reception – and I for one thoroughly enjoyed talking to our users and left with some great feedback that we will be implementing. If you would like to attend one of the future sessions they will be held weekly on Fridays; you can sign up here http://pphgooglehangouts3.eventbrite.com/
I look forward to ‘hanging out’ with you and hearing your feedback
Best,
Xenios
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