For the past year I’ve been working at Cratejoy, a small venture funded startup in Austin. One of the most interesting aspects of the job has been learning first-hand what it takes to grow a small business into a much larger one. Specifically, I think the business model Cratejoy started with could work really well for many WordPress based businesses and consultancies.
Cratejoy began as an ecommerce website solution for subscription box companies. The business model was a monthly platform fee (~$30/mo) and 1.25% transaction fee on all sales. At the time subscription box businesses like Birchbox, Barkbox, and Naturebox were taking off, but creating a website solution for recurring physical sales was still really difficult. The founders of Cratejoy raised $4 million from investors who were interested in exploring a potential new ecommerce market.
The Business Model
There’s two really nice aspects to the pricing structure Cratejoy started with.
Monthly recurring revenue makes any business more predictable in terms of income. If you have 100 customers this month, you’ll likely have most of those same 100 customers next month (and hopefully a few more). If your company plans to have more than a few people on staff, this type of predictable revenue is critical for meeting payroll and expenses.
Also, with monthly recurring revenue, the growth compounds every month. Below is a revenue chart for a business starting with 100 customers at $50/mo and 10% monthly growth. In one year it goes from $5k/mo to $14.25k/mo.
Monthly recurring revenue model is a major reason managed hosts have been able to build big businesses in the WordPress space. Long term monthly retainer contracts are also the bread and butter of larger WordPress agencies. Although theme and plugin companies have shifted to a recurring revenue model, it’s mostly on an annual basis.
Charging a small transaction fee on end customer sales is also a really smart for a platform (and perhaps also only possible on a hosted payment platform). The largest customers will generally require more resources (hosting bandwith, support, custom features, etc.) Charging a transaction fee neatly assigns incentives with between the platform and customer. Growth is good for both! It also allows the platform costs of the customer to scale (up or down), rather than having to bump them between different pricing tiers as needs change.
How This Applies to WordPress
Monthly platform fees combined with transaction fees are a great way to grow a business, but I haven’t seen many examples of it built on WordPress. Restaurant Engine is one of the closest examples I can think of, though they don’t charge transaction fees on online orders.
I’m not sure why these types of Saas solutions built on WordPress haven’t taken off yet. Hosting customers can be difficult and potentially stressful, but cloud providers and automation tools have made it much easier to deploy sites like this than it used to be.
Automattic and other players must surely be looking at a WooCommerce hosted platform to attract some of the Shopify (currently valued at ~$8B) marketshare, but smaller niche spaces also seem like they could be really fun to build a business in.
For example, ThemeBoy has a collection of themes and plugins for sports teams, clubs and leagues. Their product includes complex features for sports teams: calendars, player lists, match stats, scoreboards. The price? $99/year. If they charged $39/mo instead, it would be 4x the annual revenue. Transaction fees could also potentially be layered on for player registration.
The ideal niches are likely ones where the website solution provides a lot of value to the business (so a relatively high monthly fee could be advocated), and where the costs or complexity of building a bespoke solution are also high.
Some niches that might work as hosted solutions:
- Independent hotels or resorts
- Apartment buildings and HOAs
- Private schools or daycares
- Businesses with bookings (hair stylists, massage, fitness)
- Business with ticketing (theaters, venues, comedy clubs)
These sites don’t necessarily have to be completely productized. For additional fees, sites could be customized by a developer where appropriate, giving customers a really good solution at a much lower cost than completely bespoke sites.
Right now there’s hundreds of small theme companies offering great products, but mostly on thin margins in a highly saturated market. Could niche platform solutions create a new wave of sustainable businesses on WordPress?