It is the end of the week and Halloween is happening in full force outside right now. Our street, as usual, has an absolutely amazing number of kids running back and forth. I swear parents from outside our area load their entire block’s set of kids up in vans and bring them to our neighbourhood so they can walk safely down our very quiet street.
Most of the kids appear to have totally abandoned the idea that Halloween is about frightening costumes. I rarely open the door to a horror get-up; it is almost always some creative ideas of dress-up. I’ve had tie-die costumes, lots of princesses, a few pirates, a full Mr Peanut costume, a cardboard car from Cars, lots of purple, green, blue and pink hair and two hockey jerseys. One little girl was wearing an absolutely beautiful flamenco dancer’s dress (white satin!). We’ve had over 100 other visitors (based on the candy count) but I don’t remember all of them. Lots of fun.
Maybe it is just the “mood potential” of the day but I woke up this morning with a frightening thought. First, a little background…
Yesterday, in our meeting, Kevin Lim asked a fairly simple question about our business model. He wanted to know if there was enough room in a sports team’s budget to pay the percentage we need to charge to cover the credit card processing fees and our commission. We said that we thought so – the fee percentage is lower than the sales tax rate and people don’t have trouble paying that (most of the time). Conversation moved on but the question stuck in my head.
This morning I felt the sharp end of the point to his question. If a team needs to collect fees for a tournament, is the cost of processing the fees online higher than they are willing to pay? In other words, if the tournament costs $400 per player, is $20 of fees (5%) so high that they’ll revert back to using paper cheques to avoid it? Many of our preliminary calculations are based on targeting teams with large yearly fees or high competition/travel costs. If we are “too expensive” compared with the convenience we offer, will they just abandon our service and preserve the status quo? Frankly, at this point, we don’t know. That gave me a momentary fright.
Our business model is much easier to execute if they are willing to pay the commissions on high dollar amounts. This scenario has the highest potential revenue per team and therefore the highest potential commissions for us. It also allows us to reach profitability more quickly and therefore not have to raise as much money from investors.
If this scenario doesn’t pan out but customers are still willing to use our service for lower dollar amounts, we can still make a go of the business; it will just take longer to grow to the size we’d like. Our other revenue sources (records retention fees, money market interest, ad revenue and sponsorship sales) will have to receive more focus up front to activate them more quickly. Over the long haul, we may find we can reduce our commission rate and therefore barriers to customer enrollment if these other revenue streams strengthen the way I think they can but we won’t know until we can get some customers to tell us.
As with any scary thing, shining some light on it always makes it look less frightening. We are running a small focus group on Wednesday night and again within a few weeks. Hopefully, we’ll get some great data and feedback about our customers’ price sensitivity and be able to see more clearly the size of the monster.
There, I feel better already. Happy Hallowe’en!