Don't Charge More for Payment Plans - Thyme Is Honey

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Economic Justice: Why You Should Stop Charging More for Payment Plans

Have you ever been super interested in an online course just to pull up the sales page and discover that it will cost you significantly more money to do a payment plan versus a one-time payment?

It’s a common practice in the online world, particularly when it comes to online courses, with some experts or educators charging as much as 25% more when someone chooses a payment plan. For example, a course might cost $200. But if you want to make 3 monthly payments, they’ll be $83.33 per month, for a total of $250. If that feels a bit slimy or predatory, that’s because it is. The idea that those who “pay upfront” deserve to be “rewarded” is an example of the systemic structures that perpetuate financial injustice and keep people trapped in poverty.

Are those the things you want to perpetuate in your business? Hopefully not. Especially if you claim to align with social or economic justice causes.

What To Do Instead

Many of us default to this type of payment structure simply because it’s what we see in our industry or because it’s what we’ve been taught.

But we can do better, and I’d love to offer a different method for your consideration: Instead of charging more for payment plans, charge the same for payment plans as you do for students who are able to pay for your offer in full.

A new example: If your course costs $200, charge $200. And if someone needs a payment plan, divide it into three equal payments of $66.33.

The good news is that you can do this without losing out on money, simply by factoring all expenses into your overall costs and distributing that evenly across all your products and students. If done right, this updated method can create a more reliable and stable revenue stream while building trust with your audience instead of “othering” them right off the bat.

Why to Make the Switch

As Kelly Diels has pointed out in her writings on this topic, female entrepreneurs are under-capitalized. Minority women even more so.

Because of that, many female entrepreneurs are bootstrapped and try to recoup creation costs by charging high-interest rates on the payment plans, or as she puts it, “they are charging a made-up number that creates more profit on the backs of those least able to pay”.

However, plenty of entrepreneurs who have been in business long enough to build up their own capital and are certainly no longer bootstrapping or living “launch-to-launch”, are still profitting off these predatory revenue streams simply because they haven’t considered that there’s a more equitable solution.

If your business is not aligned with causes for social or economic justice, this idea might not interest you, and this post is not for you. But what’s the point in donating to racial justice organizations, writing a fat check to your local LGBTQ+ event, hosting a fundraiser for Ukraine, or lecturing people about “female empowerment,” if you are taking advantage of marginalized people in your very own audience? People that are, statistically, likely to be minorities, LGBTQ+, immigrants, and women?

Or, think of it this way. Would you track which customers come to you through Facebook Ads and then ask them to pay more in order to cover the cost of your Facebook Marketing campaign? Of course you wouldn’t. Your marketing costs are built into the cost of your course. We can do the same with the costs associated with payment plans, such as follow-ups or debt collection, and include them in those overhead costs that then get spread out equally across all your pricing.

Please keep reading and if needed, sit with these ideas until you’re ready to explore them. I understand that it might not be possible for every business or product — offering physical products or services comes with an inherent level of risk that can increase with payment plans and requires you to protect yourself (that risk doesn’t really exist with digital products such as courses). I also understand that switching to a different pricing model isn’t a flip that can just be switched. It might take time for you to figure out how it would work for your business. I was first introduced to this idea about a year ago, and it took several months for me to figure out how I could implement it. We’re all doing the best we can!

How to Do It

The good news is that you can implement a more equitable payment structure in your business without losing money or increasing financial risk.

And it’s pretty simple: instead of charging more for payment plans, calculate any associated risk or expenses associated with offering a payment plan, and build that into your course costs so that it is recouped equally from all your students.

You know, just like your marketing costs are. Because, again, you wouldn’t track down the people who were referred to your course by a Facebook Ad and ask them to pay your Facebook bill for the month. Similarly, debt collection or customer outreach are a cost of doing business if you offer payment plans and should be factored into your overall expenses.

Run Your Numbers

Here’s a quick example using my own course. When I launched my group course, Thyme Transformation, I enrolled 200 students in the first session. It was about 50/50 between paid-in-full and payment plans, which meant I had around 100 students making 3 monthly payments.

Within those first 3 months, there was a total of 3 defaulted payments, for a failure rate of 1% (because each payment plan made 3 payments, the total number of payments was 300).

Most course platforms notify your students of a failed payment, and they have the opportunity to correct it. If I see that it fails after a second attempt, I reach out using an email template that I can easily copy and paste. It takes about 15 seconds.

The email template explains that their payment failed, and suggests that if they recently lost/replaced their card that they log in and update their payment info. My template is casual, it’s compassionate, it relates to the frustration of having your card expire or not work. I also include a link to the billing page within my course platform to make it as easy as possible for them to add their new card info.

In each of these instances, the students logged in and updated their payment information. Meaning that I lost out on approximately $0, and it took about 45 seconds of my time to recoup the cost.

Had I been using the old pricing model, I would have made an extra $5,000 by charging students on my payment plans that $50 premium. Were the 45 seconds it took me to reach out to those 3 students worth the extra $5,000 I took from the people I already know are the least able to afford it? Absolutely not. 

Using those numbers, I can extrapolate what this follow-up work will cost me in my time and effort over the course of the year, and build that into the overall cost of my course.

If I run my course 3 times a year, with an enrollment goal of 200 students each session, I can use that 1% failure rate to assume that I’ll have around 9 students throughout the year who have a defaulted payment and require some of my time in order to help them update their information, or perhaps hear them out and consider canceling their payments or issuing a refund. Let’s go wild and say that each of those 9 students takes up an hour of my time and that my time is worth $100 per hour, so I want to recoup $900 throughout the year to cover the cost of this debt collection.

If I plan to enroll at least 600 students (200 students per session), that means I need to collect an extra $1.50 from each student to cover the expenses associated with offering payment plans. That means charging all students $201.50. A number that they aren’t likely to even notice. Much less predatory than a 25% financing fee being charged to people who are the least able to afford it.

Of course, these numbers all increase if you are enrolling thousands of students per year instead of hundreds, but the math is still the same. Increased enrollment also means that your profits are drastically increasing, and you should be even more motivated to ensure your business is helping break the cycle of poverty instead of perpetuating it.

As a Consumer

Perhaps you aren’t an online entrepreneur, but you’re curious about how you can support economic justice as a customer. Easy. Consider purchasing from creators/educators who are using justice-focused pricing in their business, instead of predatory ones. That way, your money also goes toward dismantling these systems instead of upholding them.

Money and Justice

As I said in the beginning, this post might not be for you if you are not committed to aligning your business with justice. I also understand that this might not be something that works for every business or every product. But the reality is that a lot of people are using predatory pricing without really knowing why, and without exploring other, most equitable, options.

This is a topic I am still learning about, and I’ll update this post or create new resources as I continue the journey of aligning all aspects of my business with my values and advocacy.

Hope you’ll consider the points above, and think about how your business aligns with your own values. As Kelly Diels frequently says, we can make money and justice.

Want to learn my methods for sustainable productivity? Consider jumping on the waitlist for my group course, Thyme Transformation! If you’re looking for an online course that will teach you how to set up strong, reliable digital systems that keep you organized, focused, and motivated — this is for you! The next session begins on November 28th, 2022. You can learn more and get on the waitlist by clicking here, and I’ll reach out to let you know when registration opens. Plus, you’ll get instant access to my best-selling Habit Tracker as soon as you join the list!

Don’t Charge More for Payment Plans

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  1. Marta Musolf says:

    Thank you for this, Dani. Fantastic information in support of compassionate work…love this.

  2. Sarah says:

    Thank you for this post! I love how you detailed it all out. I’ve thought about this before, but wasn’t sure how to recoup the costs. Turns out there’s a simple explanation!

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