What’s worked and what hasn’t: Commission on payments

In the early days of thinking about School of Everything we sometimes described it as “an eBay for teaching and learning” and the analogy kind of stuck. People understood what we meant especially when we clarified that it was about face-to-face learning rather than e-learning.

Then we started to think about a similar business model to eBay — we would charge a commission on successful purchases made through the site. Initially we set this as 5.25% — exactly the same as eBay. We didn’t think we would need the other parts of eBay’s business model such as listing fees.

We modeled the revenues we thought this would bring in based on how many teachers we thought would use the system and how many students would join up. Going back to the original spreadsheets we did, our assumptions were…

1. The number of teachers would grow by 40% per quarter until the end of 2009 to 7,500.
2. Teachers would take 10 payments through us per week.
3. We would have 10 times more members than teachers
4. We would have 30 times more visitors than members (although that’s not really relevant in this model)
5. The average transaction would be £20.00
6. After PayPal fees 2.5% of each transaction would come to School of Everything

and what happened…

1. Well, we got the that one right. We’re now coming to the end of 2009 and sure enough we have just over 7,500 teachers registered with School of Everything. The percentage rate has slowed a little but we’re still growing faster than ever before. The problem is how many of them use the payment system — a tiny number.
2. Way off. We don’t have any teachers who take more than 1 payment per week through us.
3. Out by 50% — we have about 5 times more members signing up compared to teachers.
4. In the last quarter we have had 300,000 unique visitors and 25,000 members.
5. The average transaction has been about £25.
6. We actually get about 3% of the transactions after all the PayPal fees.

So overall, we have roughly (order of magnitude) as many teachers, members and visitors as we thought but they’re just not paying or receiving payments through us. The model (remember this was before we’d built even the first version of School of Everything) said that we should have earned £225,886 from the commission model in the last quarter. That didn’t happen by a long way.

Back when we did our customer research, we found teachers who did indeed say that they would like to be able to take online payments. However, the basic problem seems to have been that people went around the system. They weren’t being sneaky, they just didn’t need our service enough. Teachers were perfectly used to taking payment for their services (of course) and although they complained about cheques being annoying and not get payments when people cancelled lessons at the last minute, it wasn’t a sharp enough pain for them to switch over to the service we built.

So to some extent the problem was the way we designed the service. By using PayPal we made the system easier to implement but harder for people to use. It meant that we needed teachers to have PayPal accounts in order to receive payments and also, to start with at least, students would have to leave the School of Everything site to go to PayPal to complete their payment. There were just too many steps to the process on both sides for it to be a really valuable service either for the teacher or the student.

Commission was just the first model we thought of and tried. I’ll give details of the other models in future posts. The question is whether this is the model we should return to and improve or whether we should come up with a completely new one.