Three Non-Monetary reasons to require payments from users.

Since I warned you earlier about the pitfalls of trying to slap ads on your website, it’s only fair that I offer some real ways to generate revenue.  My belief is, and always has been, that if a product is to truly succeed in any marketplace, users need to pay for it.  As such, I thought it prudent to take a bit of a detour from the “Rules” and share a quick snippet on requiring payments.

Financial transactions put the onus on the user to reciprocate the relationship you are trying to create.  It requires that they commit a small, yet very crucial, amount of trust, openness, attention, and time to you.  It requires that they give thoughtful consideration to your product, and decide for themselves if it has real worth to them.  It requires that you be treated more like the butcher then the piece of meat.  Even if the cost is small, the benefits to your site are innumerable if a user has participated in a financial transaction with you.  The following is a list of non-monetary reasons that a financial transaction benefits your site and product.  (The next post will cover how to fit payments in to your application)

1. Requiring payments filters passionate users from casual users.  Casual users are great if you want to brag about page views.  You will soon find, however, that page views aren’t likely to cover hosting costs, much less fill up your coffers with coin.  Folks that have no vested interest in your product will cost you more money then you can imagine as you try and manage inactive accounts and bandwidth spikes.  Having paid users will allow you to more accurately predict how much bandwidth you need, how much support staff you require, where to concentrate your marketing efforts, etc.

2. Requiring payments tells you more about your users then you would get for free.  Some will disagree, saying that people are as likely to lie in profile pages and surveys with a pay service as they are with a free service.  Although my experiences are contrary to that, I’ll grant that there is no iron-clad way to elicit honesty from complete strangers.  However, some very valuable information can easily be taken from pay users even if they are hell bent on filling out their personal information dishonestly.

For starters, credit card payments almost always require an address to complete a transaction.  (Make sure and choose a gateway that requires an address, if for no other reason then as one more level of fraud security.)  Right away, you know where your customer lives or works.   Similarly, if your service is geared towards the enterprise/professional space, required payments exponentially increase the chances of gathering accurate data about your users as many customers will use business/corporate credit cards to make their purchase.  For example, the data harvested from finding out that Joe Smith from widget-maker “ABC Industries” in Toledo, Ohio is paying for your book-keeping application is worth considerably more then learning that “Grim Reaper” from “The Dark Side of the Moon” likes your free check-book balancing service.

Real backend user data helps you with marketing, promotions, sales, and measuring the effectiveness and appeal of what you are doing as a business.   It’s hard to put a price on that.

3.  Requiring payments filters the customers you want from those you do not.  Once the user participates in the initial transaction, you can safely assume they are comfortable with making purchases online.  While this may seem obvious, the benefit is hard to overstate:  while you might lose a customer here and there that can not or will not purchase something online, you are benefiting significantly from the reverse as you build a client/user base willing to spend money on the internet.  Even more, they have already shown a willingness to spend money with YOU, thus laying a groundwork of trust that will benefit you going forward (provided you don’t abuse it).  Inducing the first transaction is the hardest.  After that, as long as your product delivers, the possibilities will be near endless for you to introduce additional revenue streams with existing customers.

Up next, I’ll tackle some of the non-Advertising ways of making real money with your application.

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