Percentage based vs flat fee models for 'hubs'

International Business models
1

So far in Canada, and in most instances I think, we have used a percentage of turnover ( 1- 3 % it seems) as user fees. In Canada, we have been doing 2% of turnover, but capping it at $150/month. And we only charge in months the enterprise has sales over $500.

Hubs (re-sellers) here have told us that even with the cap, this is not possible for them. Other farm-to-fork platforms here have fees that hover around $80/month for hubs.

We are thinking of going to a flat fee for hubs for a few reasons:

  1. easy to do - and it can be levied in advance for the year (and the enterprise given a discount for paying in advance)
  2. with re-sellers, levying a percentage on gross turnovers seems unfair to us. Just to illustrate from a pop up shop I just closed for my farm (selling plants):
  • turnover was $40,000 - so if we levied 2%, OFN fees would be $800
    But - this is a gross amount. Hubs are tellus that by the time they pay taxes, labour, space rental… that 2% on gross is too high.The 2% on gross can be 20% of their net.

So we are looking for some info from instances using a % of turnover:

  • are you taking the percentage on the gross? or on their net?
  • why did you decide against a flat fee?

Thanks for any thoughts. We are looking at finalizing a new set of fees in the next few weeks.

@lauriewayne1 @NickWeir @Rachel (or ping other people in your instances dealing with fee structure)

2

@tschumilas we are taking these percentages of gross turnover

We decided on percentages rather than flat fees because we wanted to make it less onerous for hubs when they were just starting and their turnover was intermittent and/or very small.

Happy to discuss more

3

surely 2% would be $800?

4

yes - sorry - typo. I get the reason of being less onerous for starting out hubs. We are just getting objection here from hubs - and competitor fees are so low… Not sure what we’ll end up doing. But I appreciate your feedback thanks @NickWeir

5

Thanks for starting this discussion @tschumilas

In France users have 3 options after using the platform during 3 months for free:

  1. To give what they wish. In this case, no custom support for them
  2. & 3. 1% of turnover up until 200K turnover, after that the percentage goes below 1% depending on the turnover threshold and the type of enterprise: https://apropos.coopcircuits.fr/offres/

Our users want us to calculate this according to net turnover. But this is quite difficult to find and it’s currently blocking us from sending our first invoices :frowning:

We have chosen the percentage after making a comparison of equivalent tools on the french market and 2 other factors:

  • the more a user is making turnover on the platform, the more the platform has value to them. So it seems more fair than a flat fee. But there are always exceptions (this is how we ended up with a percentage below 1% after a certain level of turnover)
  • To make the flat fee more fair it would mean linking the fee to some particular features for example. But this is currently not something we can automate easily. Being able to automate our whole invoice process was an important criteria as well

Hope this helps

6

very interesting - thanks @Rachel! Our users also raised questions about a percentage calculated on net vs gross turnover. We thought about using order cycle supplier totals – and add to that . Its not exactly the same as on their net - but their supplier payout is their biggest cost. But to truly get net - we’d have to know other hub costs (rentals, staffing…). In the end, we abandoned the idea.

It seems we are heading toward a flat fee - mostly because that is how all the other farm to fork platforms are pricing - and people want to compare. Eventhough we try not to be compared, because we try to say we are building a commons and a community, people still compare.

We’ll post where we have landed on this soon. I think our thinking is basically - we cannot be self sufficient here on fees alone anyway - even if we made them 5% and could find users who would pay - there are not enough users for us to be sustainable. So our business model needs to find other ways. Partnerships will be key for us. Grant funding. Perhaps we’ll head to becoming charitable and seek donations.

I think we are going to charge a setup fee - users here feel this is completely legitimate - and we’ve even had some users say they wish they had just paid us to set up for them. I think we could get pretty efficient at onboarding given our recent COVID experience.

And I think we could sell dashboards/analytics to users - needs more careful thought I know - but I think this is a service people are looking for.

7

This is were we have put the limit: we agreed with our hubs that it’s not OFN’s business model that should take into account rentals, staffing… that’s our hubs own business model.
However taxes is a bit different: when you are a wine producer in France, you pay a 20% VAT on your sales. So it is “unfair” that for you the OFN fees are 20% higher than for a vegetables producers. Excluding taxes was a middle ground that seemed doable and satisfying for everyone.

So we defined “net” as just the amount excluding tax.

In our case, the headache is that taxes are included in product prices, so difficult to extract from the platform, but maybe in your case it’s way easier?

Anyway I’m looking forward to seeing your business model in action! Maybe there are bits we could also sell on a flat fee :slight_smile: So thank you again for starting this thread :+1:

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