Last week on Founder’s Corner, I talked about our 3 sets of virtuous cycles that make up our Guiding Principles. Today let’s talk about $Money. A subject a lot of people shy away from. I’m not good at analogies, but let’s call money equivalent to the water in a river. So it is worth talking about since the Customer – Employee – Owner virtuous circle of a company, much less the company, does not exist without money to provide the life.
Helping Customers Make Money
Our business is fortunate in that we are so directly tied to helping our customers make money. Our transaction-based business model is based solely on our ability to help customers make money. This puts us in perfect alignment with our customers – we make money together.
Of course, we are the payment processor – so we have the responsibility to MOVE the money. We have moved nearly $1.5 Billion since our founding and will move about $450 Million from participants, attendees and donors to our customers in 2022. Without that money, our customers would not be able to put on their events, or do the things that money enables them to do for their particular cause or community. They would not be able to pay their vendors or employees or fund research into cancer, or help care for animals, or the many, many other good things our customers do.
This is where the river analogy comes in. Fish, crustaceans, insects, amphibians, birds, even bacteria thrive because of the moving water. And the continual flow of money has to be there or our customers do not thrive. Our event based customers saw this happen during the past two years, and the consequences are terrible – with layoffs, cuts to community programs, closed facilities, etc.
Beyond the movement of the money, there are four ways we help customers make money. Our business model is to make all of our technology available for free since both we and our customers make money when our customers are successful:
- Marketing and Promotional Tools. This is why we are putting so much effort into upgrading our Website and Email capabilities this year. Plus the many other tools we provide from analytics, to Referral Rewards to social tool integrations.
- Event Related Revenue Tools. Like Fundraising for Peer to Peer events, simple donations, and add-on store items. These make up an increasing % of the money we move to our customers, mostly driven by the rapid adoption of our fundraising and donation tools in the nonprofit space as our GiveSignup brand becomes more well known.
- Efficiency tools. We help our customers be efficient. We had a Jack-O-Lantern World use our ticket platform this past year to sell 50,000 tickets during October. They took advantage of our self-serve feature for attendees to be able to change from Wednesday night to Thursday night for example. Over 9,000 tickets were changed with 0 customer service overhead – something their previous ticket vendor could not provide. That savings in efficiency improved their costs, and probably made their customers a lot happier.
- Experience. Our endurance customers take full advantage of our RaceDay tools to provide results in real time, free photo tagging and searching, GPS tracking, TXT notifications, and many other tools that make the experience special and memorable for participants. Our most popular products are our RaceDay CheckIn and Ticket CheckIn apps. They not only make things more efficient for the event, but the experience is so much better for attendees since there is no more waiting in line.
RunSignup Money Flow
I’ll discuss our business model more in depth in another blog, but we make money when a customer makes money. We charge a processing fee per transaction. The difference between the processing fee and the costs is our Net Revenue.
One of the interesting things about that money inflow is the high volume/tiny amounts. We do millions of transactions per year and typically make about $1-$2 per transaction of Net Revenue. If you look at RunSignup.com/Realtime, each yellow dot is when we make money. So just a little bit at a time, but it adds up to support a company and our community.
The other interesting aspect about our money inflow is how spread out it is – in two ways. First, we have about 25,000 events on our platform each year, so we make a little bit of money from a lot of events. Second, is the timing of revenue is spread out. Most events generate transactions over multiple months. So our money flow winds up being very stable – except during pandemics…
There are two primary costs:
- Credit card costs
- Revenue Share to larger customers or partners. This is based on volume and can be 20% or more of our processing fee. Also, some partners charge over our processing fees and they keep the difference.
There are other costs like affiliate fees we pay to partners like RunningintheUSA to get listed on calendars, and payment processing fees of ACH (low cost) or check (high cost).
Out of Net Revenue, we have multiple expenses:
- Computing and Processing Costs. Amazon Web Services costs us over $300K per year. Twilio for TXT and Email (Sendgrid) will cost us about $200K per year with our recently expanded Email and TXT capabilities (we will grow from sending about 30-40 Million emails per month to over 60 Million this year for free for our customers). Avalara is our sales tax processing company and will costs us over $100K to help us collect and pay sales tax for all our customers. We pay an unspecified amount for security software and PCI compliance. It all adds up.
- Customer Support. All those customers, and their participants, need help occasionally. We average about 4-5,000 customer interactions per month between our support and account management teams, or about 6-7 interactions per 1,000 transactions. One of the goals of trying to keep our costs down is to try to make our service as easy to use as possible while also putting our customers in control of their own events.
- Development. We spend the most in this department. We have a “Product Led” business model. The idea is that if we have the best set of features for our customers, then we can reduce our sales and marketing costs as referrals are a much lower cost way to grow. We also try to build a lot of automation into our systems to try to reduce customer support costs – again to keep our costs low.
- Sales & Marketing. We take a slower and longer term approach to our sales and marketing efforts – aiming them more at education and trying to figure out how we can solve a customer’s problems. We also don’t have fast or large sales as even if we win a large new customer, the revenue will come in slowly over time as discussed above. So we do not have big efforts to close deals at the end of a quarter like many software and SaaS companies. We also have to be very efficient here as well since an average customer does not bring in that much revenue.
A lot of the discussion above is about efficiency. The way we strive to achieve that efficiency is with high quality people, who we pay above average compensation rates for, and who are all co-owners of the company. Good people are simply more efficient and help to achieve those Guiding Principles that drive our company.
To close with the river analogy, we are striving to create a rapidly moving river the welcomes a diverse set of events productively moving money to keep us all healthy and growing.