Dollars & Sense

Love Those Margins 💖

Dating apps are launching higher-priced premium tiers, according to last week’s The Wall St. Journal. Hinge offers a new $50/month plan, and Tinder is launching a $500/month plan. The League already offers a $1,000 plan. These pricey plans take the sting out of Bumble’s $60/month plan.

Why are companies offering such plans? Because even if Tinder only gets 10% of users, that's millions. Plus, the profit and margins are likely higher for customers using these plans. A normal customer may bring in $X per month, a paying customer $10x, and a premium customer $100x. Therefore, the dating company makes 99x more revenue on the premium user, which means that one use may be equal to 100 entry-level customers. Converting one customer into the equivalent of 100 is an alchemy most businesses dream of.  

Elastic Pricing
Having one price for all customers is not ideal because what customers can pay and what they want to pay are not equal. In an ideal world, a business’s prices are tailored to each user, maximizing what they would pay and proportionate to the value they perceive. Uber does this with surge pricing. We saw this recently with restaurant pricing. A restaurant at Zero Irving, a food hall in Manhattan, was offering 50% off a second bowl after 7 p.m. That's a good way to charge two different prices for the same playa bowl. Ideally, the restaurant could charge each college student's Campus Cash card according to their parent's monthly allowance. 

Show Me the Money, Jerry
Not only do businesses want more paying customers, but they also want those paying customers to pay more. Bumble has 3.6m paying customers, up 20% from last year. But total average revenue per customer declined by 1%.  (When you add more people paying pennies, you’ll get more paying customers, but your average will decline.) As Shop Local grows, its average revenue per client will likely decrease. We’ll get new but less engaged retailers, and they’ll reduce our average. We can counter this trend by bringing on more power users.

Much like dating apps, our businesses uses a “freemium” model. We offer many services for free, and clients can upgrade if they wish. Of Shop Local’s 1,300 retailers, 16% pay a monthly fee. Our goal is to increase the number of retailers paying the flat monthly fee. We also want to increase the number orders retailers receive because they pay commissions on orders.

When chatting about premium plans and e-commerce, it’s helpful to mention Shopify. Shopify does not employ a freemium model, and this helps separate Shop Local from Shopify. Shopify’s revenue model relies often on flat fees. Since it’s not performance dependent, it may not work as hard as Shop Local to bring merchants new orders; it’s happy to just collect flat fees. We share in the benefit of each order, so we work harder to bring you new orders.

What’s Behind the Velvet Rope?
What does one get when they pay for a premium service? Premium plans often unlock new features, help one save time (e.g. by skipping ads), or offer discounts. A premium plan on a dating app may offer unlimited swipes. Hulu’s paid plan allows one to skip ads. Doordash helps you skip delivery fees. Shopify’s Shopify+, at $2,500/month ($30k/year), gives you access to wholesale ordering and other features.

Bundles, Rundles, and Unlocks
Scott Galloway has written extensively about the power of subscription-based bundles that generate revenue (which he calls “rundles”). Premium plans are often just higher-priced bundles with even more margin and, hopefully, more stickiness.

A bundle and a premium plan may be different. A rundle may simply offer you what you have now but at a lower price, whereas a premium plan may unlock new features. The deciding factor is whether one can buy the features piecemeal or if one must subscribe to them all to get a feature they want. We discussed how Shopify does this in the Profit Meal post. It may just be a matter of time before Shopify offers a $5k/month “Shopify&” which gives you the honor of having a unified backend and front end. (We already do that :) ) 

Like the dating apps, we offer premium plans (rundles). We offer the Quick Pass, the Registry Pass, and the Pro Pass. We want to improve these plans and increase awareness about them. If we could upgrade even just a few more members to these premium plans, I’d be in love ;)

Homework: 
Imagine that you can create a new premium tier or update existing plans at your organization. What would it look like? Dream up the most expensive solution. What would it offer?

………

Read The Wall St. Journal article about dating subscriptions:
https://www.wsj.com/business/dating-apps-hinge-tinder-subscription-prices-c9a03b1?st=liyngk2avbb1jyl&reflink=mobilewebshare_permalink

Daily Mail article about Tinder premium plans:
https://www.dailymail.co.uk/sciencetech/article-11938419/amp/Tinder-working-secret-500-month-version-app.html

Tags:
Tinder hinge bumble the league shopify doordash wsj subscriptions Galloway rundle

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