aperonight/docs/pricing-model-recommendations.md

# Pricing Model Recommendations

## Current Problem Analysis

### Current Model: €1 Fixed Fee Per Order
- **Revenue**: €1.00 per order (regardless of ticket price)
- **Stripe Costs**: 1.15% + €0.25 per transaction
- **Result**: Losing money on higher-priced tickets

### Financial Impact Examples
| Ticket Price | Current Revenue | Stripe Fees | Net Profit/Loss |
|--------------|----------------|-------------|-----------------|
| €20          | €1.00          | €0.48       | **+€0.52** ✅   |
| €50          | €1.00          | €0.83       | **+€0.17** ⚠️   |
| €100         | €1.00          | €1.40       | **-€0.40** ❌   |
| €200         | €1.00          | €2.55       | **-€1.55** ❌   |

**Critical Issue**: We lose money on any ticket above €65 (€1.00 - (€65 × 1.15% + €0.25) = -€0.00)

## Recommended Pricing Models

### Model 1: Percentage-Based (Recommended)
```
Platform Fee = 3-5% of ticket price
```

**Advantages:**
- Always profitable regardless of ticket price
- Scales naturally with event value
- Simple for promoters to understand
- Industry standard approach

**Financial Impact:**
| Ticket Price | 3.5% Fee | Stripe Costs | Net Profit |
|--------------|----------|--------------|------------|
| €20          | €0.70    | €0.48        | €0.22      |
| €50          | €1.75    | €0.83        | €0.92      |
| €100         | €3.50    | €1.40        | €2.10      |
| €200         | €7.00    | €2.55        | €4.45      |

### Model 2: Hybrid Model (Best)
```
Platform Fee = €1.50 + 2% of ticket price
```

**Advantages:**
- Higher base fee covers Stripe fixed costs
- Percentage component scales with value
- Better margins on low-priced tickets
- Predictable minimum revenue per transaction

**Financial Impact:**
| Ticket Price | Hybrid Fee | Stripe Costs | Net Profit |
|--------------|------------|--------------|------------|
| €20          | €1.90      | €0.48        | €1.42      |
| €50          | €2.50      | €0.83        | €1.67      |
| €100         | €3.50      | €1.40        | €2.10      |
| €200         | €5.50      | €2.55        | €2.95      |

### Model 3: Tiered Flat Fees
```
€0-25:   €1.50 fee
€26-75:  €2.50 fee
€76-150: €3.50 fee
€151+:   €5.00 fee
```

**Advantages:**
- Predictable fees for promoters
- Simple pricing tiers
- Better than current model

**Disadvantages:**
- Less scalable than percentage
- Requires tier management

## Industry Benchmarks

| Platform    | Fee Structure              | Effective Rate (€50 ticket) |
|-------------|----------------------------|------------------------------|
| Eventbrite  | 3.7% + €0.59              | €2.44                        |
| Universe    | 2.5% + €0.49              | €1.74                        |
| Ticketfly   | 4% + €0.99                | €2.99                        |
| **Recommended** | **3.5%**              | **€1.75**                    |

## Implementation Strategy

### Phase 1: Immediate Implementation (Week 1-2)
1. **Switch to 3.5% percentage model** for new events
2. **Grandfathering**: Existing published events keep €1 pricing
3. **Communication**: Notify promoters 1 week before change
4. **Update pricing display** on event creation and checkout pages

### Phase 2: Optimization (Month 2-3)
1. **A/B Test different rates**: 3%, 3.5%, 4%
2. **Monitor metrics**:
   - Promoter signup rate
   - Event creation volume
   - Revenue per transaction
   - Customer complaints
3. **Adjust based on data**

### Phase 3: Premium Tiers (Month 4-6)
1. **Volume discounts** for high-performing promoters:
   - Standard: 3.5%
   - Bronze (€5K+ monthly): 3%
   - Silver (€15K+ monthly): 2.5%
   - Gold (€50K+ monthly): 2%
2. **Annual contracts** with reduced rates
3. **White-label options** for enterprise clients

## Revenue Projections

### Current State (€1 fixed)
- Average ticket price: €35
- Monthly orders: 1,000
- Monthly revenue: €1,000
- Monthly Stripe costs: €628
- **Net monthly profit: €372**

### With 3.5% Model
- Monthly revenue: €1,225 (3.5% × €35 × 1,000)
- Monthly Stripe costs: €628
- **Net monthly profit: €597** (+60% increase)

### With Growth (3.5% model + 20% more events)
- Monthly orders: 1,200 (20% growth from competitive pricing)
- Monthly revenue: €1,470
- **Net monthly profit: €842** (+126% increase)

## Technical Implementation

### Database Changes
```ruby
# Add to events table
add_column :events, :commission_rate, :decimal, precision: 5, scale: 4, default: 0.035

# Add to users table (for premium tiers)
add_column :users, :commission_tier, :string, default: 'standard'
```

### Fee Calculation Logic
```ruby
class Order < ApplicationRecord
  def calculate_platform_fee
    event = self.event
    commission_rate = event.commission_rate || 0.035
    base_amount = total_amount_cents / 100.0
    (base_amount * commission_rate * 100).to_i # return in cents
  end
  
  def platform_fee_euros
    calculate_platform_fee / 100.0
  end
end
```

### Promoter Dashboard Updates
- Show fee breakdown on event creation
- Display projected fees during ticket setup
- Add revenue vs. fees analytics
- Export fee reports for tax purposes

## Communication Plan

### Email to Existing Promoters
**Subject**: "Important Pricing Update - New Fair Fee Structure"

**Key Points**:
- Current model loses money on higher-priced tickets
- New model ensures platform sustainability
- Better features and support with improved revenue
- Existing events unchanged, new events only
- Competitive with industry standards

### Website Updates
- Update pricing page with clear fee calculator
- Add FAQ about fee structure
- Transparency about what fees cover (development, support, payment processing)

## Risk Mitigation

### Potential Issues
1. **Promoter backlash**: Higher fees on expensive tickets
2. **Competitor advantage**: Other platforms with lower fees
3. **Reduced event creation**: Promoters may create fewer events

### Mitigation Strategies
1. **Value communication**: Emphasize platform improvements and reliability
2. **Competitive analysis**: Position as "fair and sustainable" vs. competitors
3. **Volume incentives**: Quick path to reduced rates for active promoters
4. **Feature rollout**: Launch new promoter features alongside pricing change

## Success Metrics

### Financial KPIs
- Monthly recurring revenue growth
- Average revenue per transaction
- Profit margin improvement
- Customer acquisition cost vs. lifetime value

### Product KPIs
- Promoter retention rate
- New event creation volume
- Average ticket prices
- Customer satisfaction scores

## Conclusion

The current €1 fixed fee model is financially unsustainable and actually costs us money on higher-value transactions. Moving to a **3.5% commission model** will:

1. **Ensure profitability** at all ticket price levels
2. **Align with industry standards** for competitiveness
3. **Scale revenue** naturally with platform growth
4. **Fund platform improvements** and better promoter tools

**Recommendation**: Implement 3.5% commission model immediately, with grandfathering for existing events and a clear communication plan to promoters.

## Fee Collection Method: Industry Standard

### Current Approach vs Industry Standard

**Current Model (Not Recommended)**:
```
Customer pays: €50 + €1 fee = €51
Promoter receives: €50
Platform keeps: €1
```

**Industry Standard (Recommended)**:
```
Customer pays: €50 (clean price)
Platform keeps: €1.75 (3.5% of €50)
Promoter receives: €48.25
```

### How Major Platforms Handle Fees

**Eventbrite:**
- Promoter sets: €50 ticket
- Customer pays: €50 
- Eventbrite keeps: €1.85 (3.7%)
- Promoter receives: €48.15

**Ticketmaster:**
- Promoter sets: €50 ticket  
- Customer pays: €50
- Ticketmaster keeps: €5-7.50 (10-15%)
- Promoter receives: €42.50-45

**Universe (by Ticketmaster):**
- Promoter sets: €50 ticket
- Customer pays: €50
- Universe keeps: €1.74 (2.5% + €0.49)
- Promoter receives: €48.26

### Why Deducting from Payout is Better

#### 1. Customer Experience
- **Price transparency**: Customer sees exactly what they expect to pay
- **No surprise fees**: Reduces cart abandonment
- **Competitive pricing**: Easier to compare with other events

#### 2. Promoter Benefits
- **Marketing simplicity**: Can advertise clean prices
- **Psychological pricing**: €50 sounds better than €51.75
- **Competitive advantage**: Not adding extra fees to customer

#### 3. Platform Benefits
- **Higher conversion rates**: No fee-shock at checkout
- **Better promoter adoption**: Easier to sell to event organizers
- **Industry standard**: Follows established practices

### Psychological Impact

**Adding Fees to Customer (Current)**:
- Customer thinks: "€50 ticket... oh wait, €51.75 total" 😤
- Cart abandonment risk

**Deducting from Payout (Recommended)**:  
- Customer thinks: "€50 ticket, €50 total" 😊
- Smooth purchase experience

### Promoter Dashboard Display
```
Ticket Price: €50.00
Platform Fee (3.5%): -€1.75
Your Earnings per Ticket: €48.25
```

### Communication to Promoters
**Before:** "Platform charges €1 per order to customers"
**After:** "Set your desired revenue per ticket, we handle the rest"

**Example:**
- Promoter wants €48.25 net per ticket
- They should set ticket price at €50
- Customer pays €50, promoter gets €48.25
- Clean, simple, industry standard

## Competitive Analysis

### Main Competitor: €1 Flat Fee

Our main competitor charges a simple €1 flat fee per order. Here's how our models compare:

### Hybrid Model vs Competitor Analysis

**Hybrid Model**: €1.50 + 2% of ticket price  
**Competitor**: €1.00 flat fee

| Ticket Price | Competitor Fee | Hybrid Fee | Difference | Competitive Position |
|--------------|----------------|------------|------------|---------------------|
| €10          | €1.00          | €1.70      | +€0.70     | More expensive      |
| €25          | €1.00          | €2.00      | +€1.00     | More expensive      |
| €50          | €1.00          | €2.50      | +€1.50     | More expensive      |
| **€75**      | **€1.00**      | **€3.00**  | **+€2.00** | **Break-even point** |
| €100         | €1.00          | €3.50      | +€2.50     | Much more expensive |

### Alternative Competitive Models

#### Option 1: Low-End Competitive Model
```
Platform Fee = €0.50 + 1.5% of ticket price
```

| Ticket Price | Competitor Fee | Our Fee | Difference | Position |
|--------------|----------------|---------|------------|----------|
| €10          | €1.00          | €0.65   | **-€0.35** | ✅ **Cheaper** |
| €25          | €1.00          | €0.88   | **-€0.12** | ✅ **Cheaper** |
| €50          | €1.00          | €1.25   | +€0.25     | ⚠️ Slightly higher |
| €100         | €1.00          | €2.00   | +€1.00     | More expensive |

#### Option 2: Modified Hybrid Model
```
Platform Fee = €0.75 + 2.5% of ticket price
```

| Ticket Price | Competitor Fee | Our Fee | Difference | Position |
|--------------|----------------|---------|------------|----------|
| €10          | €1.00          | €1.00   | **Equal**  | ✅ Competitive |
| €25          | €1.00          | €1.38   | +€0.38     | ⚠️ Slightly higher |
| €40          | €1.00          | €1.75   | +€0.75     | **Break-even** |
| €75          | €1.00          | €2.63   | +€1.63     | Much more expensive |

### Competitive Strategy Recommendations

#### 1. Value Differentiation Approach
Since we'll be more expensive on higher-priced tickets, focus on premium positioning:

**Value Proposition:**
- "We're not the cheapest, we're the most complete"
- Advanced analytics dashboard
- Real-time sales tracking  
- Professional promoter tools
- Superior customer support
- Platform reliability and sustainability

#### 2. Market Segmentation Strategy

**Target Market Positioning:**
- **Competitor**: Best for small, simple events (€10-30 tickets)
- **Us**: Best for professional events (€40+ tickets) with serious promoters

#### 3. Hybrid Competitive Approach

**Tiered Offering:**
- **Basic Plan**: Match competitor at €1 flat fee (limited features)
- **Professional Plan**: Hybrid model with premium features
- **Enterprise Plan**: Custom pricing with full feature set

#### 4. Volume-Based Competitive Response

**Free Tier Strategy:**
- First 3 events per month at competitor's €1 rate
- Volume discounts for high-activity promoters
- Loyalty rewards for long-term customers

### Marketing Positioning

#### "Choose Your Business Model" Campaign

**For Simple Events (Under €40):**
- "Need basic ticketing? Our competitor works fine"
- "Pay €1 flat fee for simple events"

**For Professional Events (€40+):**
- "Serious about your business? You need serious tools"
- "Fair percentage-based pricing"
- "Advanced analytics, marketing tools, priority support"

#### Brand Positioning Statement
**"We're the Shopify of Events - Built for Growth"**

This positions us as the premium option for serious promoters while acknowledging the competitor's advantage on small events.

### Implementation Recommendation

Given the competitive landscape, we recommend **Option 1** (€0.50 + 1.5%):

**Advantages:**
- Competitive on low-priced tickets
- Still profitable at all price points
- Better positioning against main competitor
- Appeals to both small and large event organizers

**Financial Impact:**
- Lower fees on tickets under €33
- Competitive fees on tickets €33-66
- Premium pricing on high-value tickets justified by features