There is a wide variance in processing fees consumers are willing to pay for different events – from low RunSignup-like fees to high Ticketmaster type fees. And yet consumers are willing to still sign up for the race or buy the tickets. If you’ve taken an Econ course, you’ve heard this phenomenon referred to as Price Elasticity (actually inelastic in this case!).
For races, this means that if there is a higher processing fee not many participants will be scared away. For example if 100 people will pay a processing fee of $3.00 on a $50 race, and you raise the processing fee to $5.00 maybe 98 people will sign up. That means you lost 2 people * $50 = $100. But you have gained 98 people * $2.00 = $196. So it generated an extra $96 of total revenue! Of course if only 90 people sign up, then that is pretty bad economics.
Where Does the Processing Fee Go?
There is a great Freakonomics podcast on this topic. They talk mostly about Ticketmaster, where the processing fee is actually split between Ticketmaster, the venue and the performer. That $20 processing fee for the $50 tickets largely goes to the venue and/or performer. There is obviously a lot of money involved, and that is why they have done the price elasticity studies to maximize revenue. Also, Ticketmaster gets the black eye while not necessarily deserving it (fully).
In the race registration market, those processing fees typically go to the registration provider, who also pays the credit card costs. Many times, there is also a revenue share that may go to a partner, who shoulders some of the sales and support burden. Of course, there have been norms established in the race community of what normal processing fees look like – so there is not as much room for price increases as there is in concerts.
What Should Races Do?
Races should consider raising their processing fees as a source of revenue. RunSignup allows you to set your own processing fee, and you can either keep the extra above the normal RunSignup fee (in the above example, our standard processing fee for a $50 race is $3.00, so if you set it at $5.00 you would keep the extra $2.00), or you can use it to help pay your timer – essentially moving at least some of your timing costs from the race fee to the extra processing fee.
We offer a slightly different approach for donations. We charge a flat 4%, which the nonprofit can absorb or have the donor pay, or give the donor a choice.
Of course, the other approach is to leverage the low processing fees on RunSignup to make it as inexpensive as possible for runners to participate. We offer a simple way for the race to pay the processing fee.
Registration Company Processing Fees
Registration companies have noticed this as well. A number of them are actually increasing prices or doing a “call us” for pricing. This can help them in the short term as they can increase revenue in a declining market. They also can use the increased price to offer discounts or revenue shares that seem larger. For example, pricing of $1.50 per participant + 6.75% yields a processing fee of $4.88 on a $50 race fee – $1.88 more than the standard RunSignup fee. They can use that to help share revenue with timers and to offer discounts to customers.
RunSignup’s pricing has been the same since we started out in 2010, and our partner revenue share has stayed consistent. We brought the concept of no “per participant” pricing to the industry as a way to not penalize families from registering together. We’ve brought the concept of non-exclusive agreements that have zero lock-in for customers. And we have enabled races to have the power to set their own processing fee – not ceding control to the registration company to determine how the extra processing fee revenue is spent.
We also have no plans to change our pricing. We’ve reached a size where we are profitable, very efficient and our costs are spread across over 18,000 races and 5-6 Million participants. They allow us to be the low cost provider, and for races to be in control of pricing.
One hint for those races who do not use RunSignup – just mention our name to your current provider for a special discount 🙂