What Is A Service Fee?
Service fees have flooded the mainstream for many products and services that you enjoy today. Not surprisingly, the emergence of service fees may raise questions from consumers who want to better understand where every dollar goes, especially as we demand more transparency in our business dealings.
What is a service fee?
Many organizations leverage service fees as a vehicle to “offset the costs of service” for providing a solution to a consumer. Service fees are a simple way to apportion actual costs based on consumption and use of a service. Service fees are typically based on the value of the goods or products serviced.
Service fees have become mainstream due to the high costs of developing, maintaining, delivering and supporting an online service. Many consumers are surprised to learn that the costs of building what appear to be “simple” services often costs millions of dollars up front to build, and even more to maintain and support on an ongoing basis.
How are service fees different than credit card processing fees paid by sellers?
Service fees are paid to the provider of the product or service utilized, whereas credit card processing fees are paid by sellers to the bank “system” that facilitates payments and credits. There are strict legal requirements, federally and the state level, that limit or prohibit passing on credit card processing fees to consumers / buyers.
Credit card fees effectively cover the costs of the card network provider (e.g. AMEX, VISA), the issuing bank (e.g. Bank of America) where the consumer has a debt obligation), and the processor (e.g. First Data, Paypal, Stripe) which facilitates the transaction. The credit card fees also cover fraud, disputes, recovery, and vary significantly based on the merchant category classification (e.g. Farm vs. Restaurant vs. Church).
Why do software companies charge a service fee?
Service fees have become mainstream amongst software companies due to the high costs of development, maintenance and support. Increasing requirements and scrutiny regarding data privacy and security, have increased costs for software companies. Today, many Software-as-a-Service (SaaS) companies wrap in service fees (charged to buyers) to reduce the actual costs of their services to their business customers.
What are examples of a service fee?
There are numerous examples of service fees paid by consumers today. Perhaps, some of the most obvious would be AirBnB (3%) for vacation home stays. Service fees from software providers occur across industries from hospitality (AirBnB) to movie tickets (Fandango), concert tickets (Ticketmaster), and food delivery (UberEats). In most cases, service fees are in excess of 5%—and sometimes as high as 10%—based on the value of the products and services provided.
How can Barn2Door charge a service fee of only 1%?
Barn2Door aims to keep costs exceedingly low for Farmers and their customers alike. Given there are 2.1M farms in America, our goal is to serve literally tens of thousands of customers and spread the costs, versus charging exorbitant subscription fees to farmers, high service fees to customers, or marking up your food costs.
As you may be aware, other solutions are available to Farms. You may either: (a) lose a percentage of Farm sales (sometimes as high as 7%); (b) charge buyers a high service fee (sometimes as high as 5%), or (c) mark up Farm food (often 15-30%). At scale, Barn2Door can continue to deliver a cutting-edge solution for Farmers and best-in-class customer service at a low monthly subscription, while offsetting actual costs with a low service fee of just 1%.
What if my customers complain?
Across thousands of customers, we have found less than 1% of customers voice any concern—and those who do are genuinely curious about a service fee (complaints are a rarity). Even if you do hear the occasional grumble, it is typically a matter of educating those customers about the 1% service fee for the convenience of doing business with your Farm.
Your customers are paying for improved access, convenience, and an audit trail for all their purchases from your Farm. They receive automated receipts, delivery reminders, and save time while ordering. They enjoy anytime, anywhere access to your Farm. Additionally, they receive “chat support” and real-time access to our support team.
And yes, that 1% service fee does subsidize the costs for your Farm to take advantage of Barn2Door, helping you to save time and increase orders online. As your current customers begin to enjoy the improved ease of use and the visibility of your Farm inventory, product availability and simplified delivery options, they’ll acknowledge the service fee is well worth the convenience.
New customers will know no different from other online services they use today. In fact, they often recognize our service fee is exceptionally low.
Can I pay the service fee in lieu of passing on to customers?
No. At this time Barn2Door is designed only to “pass on” service fees to the buyer. Given the prevalence in other consumer transactions, buyers readily acquiesce to service fees as a cost of doing business online. Barn2Door, too, believes the actual costs of our services could be best absorbed by buyers as a whole, allowing us to provide Farmers with lower subscription costs and increasing the affordability to Farmers of all sizes.
We’re delighted to work with Farmers across the country and we aim to keep our subscription fees to Farmers low. Barn2Door’s actual costs to develop, maintain and support our Farmers with a secure solution and best-in-class customer service necessitate a nominal service fee to offset costs at scale. Fortunately, buyers as a whole are accustomed to much more expensive service fees for a wide range of consumer products and services, which in short, is the best outcome for Farmers and buyers alike.
If you have other questions on topic, don’t hesitate to reach out to Barn2Door directly at firstname.lastname@example.org.