Every sweepstakes software company expects compensation when a business owner uses their sweepstakes promotional platform. Also, every sweepstakes software company charges an ongoing licensing cost. This payment will be a percentage of the revenue you, the business owner, make after paying out customer winnings. Sometimes this number (Gross Revenue minus Customer Winnings Payout) is called the Net Win. Thus the Net Win is the amount you have left after all “payouts” to customers. The companies that make Sweepstakes Products want a piece of the Net Win. Even though all sweepstakes companies charge a different percentage, those that are more reputable are usually in the mid 20 to high 30 percent range.
We have had some of people ask “Can’t I just buy the sweepstakes software outright and avoid any ongoing payment?” Unfortunately, the answer in all cases is “no”. Sweepstakes software companies don’t allow this. Although this rubbed us the wrong way as we were learning about the industry, we eventually learned to deal with it as we realized how much money our clients, distributors and business owners, were making in spite of licensing fees. Sweepstakes promotions can be an extremely profitable for nearly any business.
Furthermore, in time it became apparent that these sweepstakes software providers made money when the businesses that they supply made money. One would think that this would naturally result in all sweepstakes platform providers being exceptionally good at supporting their products. Although this is surprisingly not always the case, at least the smart companies provide good ongoing support.
Sweepstakes Companies use three different systems to collect. By far the most common is a billing system (or invoicing system), which works like this.
I’m the customer and you’re the business owner. I give you $20 to buy a product (usually Internet access time) and you give me the product and free sweepstakes entries to play the sweepstakes games. These entries are usually called sweepstakes credits, entries, or points. I then walk over to a sweepstakes terminal and play games (reveal my entries) using the credits. After a while I’ll decide I’m done playing and I want to “redeem” whatever I have won. This is sometimes called cashing out, but technically cashing out is a casino or gambling term so it’s not accurate. At this point I, the customer, still have all of the Internet access (time) that I have purchased. I can browse the Internet using that time if I want. Finally when I’m done I walk back up to you, the business owner, and tell you I’m done. You look at my account and realize that I have won $10, so you give me the cash and I walk out happy. In this scenario I, the customer, walked in, gave you $20, played games for a while, won $10 back, surfed the web for a while, and then left. You, the business owner, made $10.
Next week you, the business owner, will get a bill from the software company that says “You owe us $3 because we know you made $10 from the customer and you have to pay us 30% of your net win”.
A second way to handle billing is a Credit-based Accounting System, which works like this.
I’m the customer and you’re the business owner. I give you $20 to buy the product and you give it to me with 20 free sweepstakes credits to reveal by using the sweepstakes games. I then walk over to a sweepstakes terminal to reveal entries by “playing games”. Again, at any point I may decide I want to surf the Internet. After all, this is what I purchased, right? Eventually I may decide that I’m done and will want to “redeem” whatever I have won. I return to you, the business owner. You look at my account and realize that I have won 10 “prize credits”. You take my 10 credits and give me $10. In this scenario I, the customer, walked in, gave you $20, played games for a while, won $10 back, and then left. You, the business owner, made $10 and lost 10 sweepstakes credits.
To the customer this feels exactly the same as the invoicing model. To the business owner it is also very similar. However, this entire system is based on credits. Every time a dollar worth of product is sold (one dollar into your cash register), a free credit is given out. And if a customer redeems prize credits to get cash, credits are coming back in on 1 for 1 basis; 1 credit for 1 dollar. This relationship between dollars and credits makes this system very simple.
Customers will continue coming to your store purchase products and you will keep giving them free sweepstakes credits when they purchase a product (usually Internet time). As customers use sweepstakes credits to reveal entries, they will consume (lose) those credits or entries. As this keeps happening, your pool of credits will diminish and your cash register will fill up. Eventually you will need more credits so that you have credits to give your customers. At this point you will call us to buy more credits. You might call next week, or you might call in a month, or it might be tomorrow–but sooner or later you’ll need to purchase more credits to continue running your sweepstakes promotion. You, the business owner, decide when to buy credits and how many you want to purchase. While using a credit-based system you will never receive an invoice or a bill.
The credit system, explained in more detail in this article: www.sweepstakesmachines.com/sweeptalk/credit-based-accounting/ , is completely automated in our Internet Kiosk system. This means that while using an Internet Kiosk (sweepstakes Totem), you don’t even need a point-of-sale computer or a sweepstakes game server!
The credit system simplifies the accounting process because there can never be any confusion about how much you owe or when to pay. As a business owner you buy as many credits as you want whenever you want and you know that every time a dollar shows up in your cash register, one credit will be consumed by your customers from your available pool of credits.
Another big advantage of the credit system is the way that it compensates for the rare, but occasional loss day. As new businesses are starting out with any sweepstakes solution, it is not uncommon to experience a day when the combination of a low volume of customers (because the store is new) and a few big winners (which is normal in any sweepstakes) results in a day with an overall LOSS–when you pay out more in winnings than you make. In a billing/invoicing system this is considered a wash. Unfortunately, the sweepstakes company is not going to send you a check for 25% of your loss. You just lose it.
However, with a credit-based system you actually EARN credits if you have a loss day. If you LOSE $500 on a “big payout” day with a billing/invoicing system all you have to show for it is an empty cash drawer. With a credit-based system you would have 500 extra credits that you did not have before the day started. These will be given out as dollars come in, and the net result will ultimately be $500 back in your cash drawer. Although this concept may be a little tricky to get your head around, it is a significant advantage of a credit-based system (especially as your new business is getting off the ground).
For distributors the credit system is a godsend. Instead of billing, invoicing, and chasing store owners to pay their bills, the store owners will call you when they need more credits. Instead of being a bill collector, you’re an order taker.
A third and final way to bill customers is a Flat, Monthly Rate. This system has recently been introduced to the market and is very simple.
The software company bills you, the customer, based on the number of terminals you have rather than volume or the amount of money you make. At first pass this sounds like a fantastic plan. As a matter of fact, if you could get this deal from any significant sweepstakes solution you would truly be getting a bargain. Unfortunately, there is always free cheese in a mousetrap!
We have only seen this billing method implemented by one or two very new companies with sweepstakes platforms that have not been able to compete with any of the legitimate sweepstakes games. Since their product is not in high demand, the sweepstakes companies have attempted to lure novice investors into selecting their seemingly low-priced software. Of course, VALUE is more important than PRICE. Is it a good deal to buy a CAR for $1,000? Sure it is; especially if that car is a Ferrari! Unfortunately, companies that offer this pricing scheme are selling broken down Pintos.
More than one rookie who aspires to build a successful business with sweepstakes promotions has fallen prey to this “easy money” mirage. Ultimately what happens is the seemingly clever plan backfires utterly. This software is usually so bad that the business owners make extremely little money from customers. Thus the “low, flat fee” becomes a millstone around their necks when the total income generated is miniscule.
NOTE/UPDATE: This update was added years after the original article was written. To this day we have seen a total of FOUR sweepstakes software companies try this method–usually as a “last ditch effort” to compete with more successful sweepstakes companies by undercutting price. We have never–not once–seen an Internet cafe using software with a “flat fee” payment program succeed. Never, ever. Hence a “flat fee” is certainly a warning sign of a sweepstakes platform that simply does not work.
All three systems work perfectly well and all accomplish the same thing–paying the software company to use their sweepstakes platform. If the “flat rate” plan were ever offered by a decent software provider this would be our preferred choice. But since this is not the case, we are only left with the billing/invoicing model and the credit-based system. In our professional opinion the credit-based system emerges as the intelligent solution. It enables simple reconciliation and accounting and offers the most benefits for business owners.