Are they mutually exclusive? Can they play well together?
Is there a time or place where they’re more appropriate?
The answer is, of course, yes. And no.
Don’t worry… I unconfuse it all below.
For context, on Friday, May 5, 2017, I did a Customer Success Ask Me Anything (AMA) on Facebook live. It was awesome. The video (audio only… sorry) is embedded below and below that is the transcript (edited for better readability) that answers the question.
What is your thought on setup fees?
The first question is from Tim, “What is your thought on setup fees? We charge a few hundred bucks to customers of a certain size, but realistically, we care far more about the recurring plan revenue than any upfront fees.”
Tim, thank you for your question. It’s interesting. Setup fees, there’s certainly some psychology to getting people to make a commitment early on, but a lot of times, it doesn’t do what we think it does.
I’ve seen it a lot where customers will pay something and we think, “That’s going to lock them in.”
Very often, we have an actual cost associated with setting up customers, and that’s cool. We have a cost so we need to cover it. Sometimes we think it’s going to be the thing that locks customers in. I think that’s where we need to get real.
That doesn’t lock customers in. As long as we’re doing it as a way to cover our costs or because it’s what our customers expect, or even as a way to simply increase revenue… As long as it’s within the confines of an appropriate experience for the customer, I think we’re fine.
It’s not going to cause people to stay. It’s not going to cause anybody to be successful. When you care more about your recurring revenue, what you should be focused on is making sure that your customers are successful.
If what goes into the setup that you’re charging a fee for is going to set up your customers for success later on, then cool.
If charging a fee is going to keep people from being successful, then that’s a problem. It isn’t good. It isn’t bad. It just is. The main thing is are you actually setting your customers up for success? If that’s the case, then I’m all for it.
