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 customers their 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 low 20’s to high 30’s range.
We have had some of people ask “can’t I just buy the Sweepstakes Product outright and avoid any ongoing payment?” Unfortunately, the answer in all cases is “no”. Sweepstakes platform 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 companies make money when the businesses that they supply make 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 entries” to play the sweepstakes games. These entries are usually called sweepstakes credits or points. I then walk over to a sweepstakes terminal and play games using the credits. After a while I’ll decide I’m done playing and I want to “redeem” whatever I have left. This is sometimes called cashing out, but technically cashing out is a casino or gambling term so it’s not accurate. 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, lost $10, and 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 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” credits to reveal by using the sweepstakes games. I then walk over to a sweepstakes terminal to reveal entries by “playing games”. After a while I’ll decide I’m done playing and I want to “redeem” whatever I have left. I return to you, the Business Owner. You look at my account and realize that I have 10 credits left. You take my 10 credits back and give me $10. In this scenario I, the customer, walked in, gave you $20, played games for a while, won $10 back (from the $20 I gave you), and then left. You, the business owner, made $10 and lost 10 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 credit is given out a dollar shows up in your cash register. And if a customer redeems 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” credits when they purchase a product (usually Internet time). As customers reveal entries, they will lose credits (sweepstakes entries). Each credit they lose by revealing entries while playing sweepstakes games will result in 1 more dollar in your cash register. As this keeps happening, your pool of credits will diminish. You will need more credits so that you have credits for your customers. At this point you will call your Distributor 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. 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 you will receive exactly $1 every time a credit moves out of 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. 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 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.
All three systems work perfectly well and all accomplish the same thing–paying the software company to use their product. 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 with the most benefits for Business Owners and Distributors.