Payment options on website

[Nat]

I've got a business idea in mind where I provide a service and essentially skim a 2-3% fee for the service. However, a huge portion of the service is providing an easy online payment platform for the user instead of paying cash in person to the 'seller.' So, half of this idea is based on being a middle-man. What would be ideal is to set up a monthly subscription with a credit card or direct deposit from someone's bank account. However, I have no clue how to go about doing this. All I've ever used for payments is PayPal. And their merchant fees would essentially be too much for this to work since me skimming 2% would bring it around 5% which is more than I think people will be willing to pay

 

[Golan]

A bit confused about who pays whom here... Can you explain better, maybe draw some chart?

 

[Steve Brownlie]

Hi Nat, it's possible you're charging too little to be the middle man... Upwork, Textbroker etc take 20%-30% from their freelancers...

 

[Nat]

A bit confused about who pays whom here... Can you explain better, maybe draw some chart?

I'm sorry, this should help.
A lot of teachers who give private lessons are paid with cash or checks. But, a lot of people would prefer to pay online, or set up an automatic online subscription that pays fees each month. Private lessons teachers aren't making a ton of money, so they aren't interested in this service if it takes very much of their earnings. However, they realize its much easier for the customers. So, I'd like to set up a website where teachers and students can both register, and then easily pay the teacher.

Hi Nat, it's possible you're charging too little to be the middle man... Upwork, Textbroker etc take 20%-30% from their freelancers...

Thanks for the feedback, if you look at my response to @Golan I think you'll realize that this won't work if I take 20-30%.

 

[CCarter]

Since you want to be the "marketplace" you'll have to understand you will be the middle man which will have to deal with refunds, chargebacks, and disputes. Stripe allows you to accept credit cards, bank account transfers (wire/ACH) https://support.stripe.com/questions/accepting-ach-payments-with-stripe, and even setup a marketplace like an APP store where one set of users pay and the other set of users have to get paid seamlessly - that might be the perfect solution for you: Stripe Connect

 

[Steve Brownlie]

If all you want to do is become a 'payment processor' then I have no idea why anyone would use you and not just take PayPal or sign up for Stripe...

However let's be optimistic here- you'll find a bunch of great teachers, and a bunch of people who want to learn...

Aren't you just textbroker but for 'learning music'?

Therefore you can charge 30%...

Without you the teacher would have no client... so it's either take what you pay or find their own students. The same way the freelance sites work. I don't see why you'd build a business in the super low margin payment processing niche when you can build a business in the work supply/freelance niche where 20-30% is pretty standard.

 

[Nat]

If all you want to do is become a 'payment processor' then I have no idea why anyone would use you and not just take PayPal or sign up for Stripe...

However let's be optimistic here- you'll find a bunch of great teachers, and a bunch of people who want to learn...

Aren't you just textbroker but for 'learning music'?

Therefore you can charge 30%...

Without you the teacher would have no client... so it's either take what you pay or find their own students. The same way the freelance sites work. I don't see why you'd build a business in the super low margin payment processing niche when you can build a business in the work supply/freelance niche where 20-30% is pretty standard.

There are a lot of piano teachers who have plenty of students. However, they aren't skilled enough to set up their own website with a Stripe payment option. Instead, they are accepting checks from every person, and having to worry about late collections (reminding people for late payments). So, they would love to be able to have easy payments and have their students set up auto-subscriptions. This isn't valuable enough to a teacher to pay more than maybe 5% for. And with a 3% fee from Stripe, 2% isn't much.

Make sense?

 

[Ryuzaki]

Make sense?

I know someone IRL who deals with this. Here's a kink in your plan that I see.

Churn.

The people who stay on are also those who don't have issues with payments, and often times will add extra money on the checks around holidays and what not because they know it's typically a starving artist type doing the teaching.

It's the people who sign on for a few weeks, or a few months and miss lessons here and there and quit suddenly. They'll be the same people who don't cancel their subscriptions.

So you end up in the same situation of either refunding money to them or having to be the guy logging on and canceling their subscriptions for them. Same amount of hassle except at least this way you're collecting money. I'd rather be refunding than chasing payments.

Food for thought.

 

[CCarter]

A margin of 2%... You have ZERO room to breathe. This isn't even PROFIT, this is just cashflow. You will have server costs, customer service to answer and stay up on - are you even calculating your time as a resource or maintaining a growing scaleable business?

I don't even think you are doing basic math.

To make $100,000 a year before taxes = $8,333 a month at 2% you would need to have teachers generating $416,667 dollars in revenue PER MONTH ($5,000,000 in revenue a year). Let's say a Piano lesson costs $50 an hour. That's 7,062 hours of lessons in a month. The fact that there is only 720 hours in a month - means you'll need A LOT of teachers.

Let's say a teacher can do 20 hours a week - you'll need 354 teachers working 20 hours a week to get to a simple $100K a year salary - just for YOU. Forget about hiring employees, VAs, and other people to help you out like server administrators, just you.

If you can get a solid 40 hours a week from a teacher, you'll only need 177 teachers grinding 40 hours a week at this.

Between 177 to 354 teachers - how much customer support do you think you'll need to account for a week? 10-20 hours in that? You think your system is going to be magically so easy that teachers will not be contacting you left and right for small support issues - a magical feat Paypal, Stripe, any bank on any corner, or ANY BUSINESS in the world has been unable to achieve?

So you'll need to account for customer support. Then there is the marketing aspect, how are you going to spread the word about your operation? Don't expect to magically churn out a referral system from teachers, you'll need to dedicate 10-20 hours a week just on marketing to get things going. And then there is maintaining and improving the system - another 10-20 hours?

Those are 3 major portions of a business - which add up to 30-60 hours of your time a week, most likely triple that when you are getting off the ground and going. But remember mate, that work load is only estimated for a single individual making $100K a year off of $5,000,000 in revenue flowing through your platform from this operation.

I dunno about that 2% - You are on the internet where there are people around the world making 80-95% profit margins off of margins a lot bigger than 2% - yet you can't understand why these operations like fiverr or other places charge 20-30%? Operating Costs mate.

I'm not saying don't do it, it looks like it's a business worth investigating, but do your math correctly first. Otherwise you'll be in a business model with low margins, no room to maneuver, zero breathing room, working like a horse for hundreds of customers, with no help - yet not making any serious money.

 

[Ryuzaki]

If you can get a solid 40 hours a week from a teacher

You can't. Scheduling doesn't permit it. Kids are in school, parents are at work. It almost exclusively happens in the hours between 4PM to 8PM. One teacher can't push 40 hours, and even if they magically hit that at some point, they won't keep it. 20 hours per teacher is probably optimistic, even in big operations with 10-20 teachers with various instruments. And at that point, the people they are working under are handling payments and skimming off the top at 20-25% for "rent" on the studio space. It's not really a space that can handle much more skimming.

 

[Nat]

Before starting this thread I was indebted to @Ryuzaki and @CCarter for all the great threads / help they've provided on this forum, but even more so now. I'm still trying to figure out how things work, and you guys have given some very valuable feedback. I'm still searching for a way to get my foot in the door, and I don't think this idea is it haha.