Structuring the Prepayment Discount

Members of the ISP-Marketing list share the discounts they offer to customers who prepay for dialup access over a period of several months or a full year. Once customers have prepaid, ISPs' policies on cancelling also very widely.

[January 10, 2002]

On the ISP-Marketing list in December, JP asked,

"Does anyone discount the cost for ISP services if customers prepay? How much would you charge if someone paid for a year in advance, or six months in advance?"

A number of respondents shared details of their prepaid offerings:

[MS noted] "I give them a free month—but make it an extra one. Don't charge only for 11 months; charge for 12 months and give them 13 months."

[JB recalled] "We offered discounts for prepayment equal to 8 percent of the amount prepaid (equal to one free month for a year's prepayment). We found this easier than 'remembering' the 13th free month."

[PW added] "We discount 10 percent for six months, and 20 percent for twelve months, for all monthly recurring services we offer."

[BH offered] "We give a 10 percent discount for prepayments of three months or more. It's surprising how many don't take advantage of this offer: only a very small percentage of individuals and businesses pay in advance."

JB observed that prepayment is also a great reseller option:

"We made an offer to car dealers to discount them to $11 per month (a discount of $3.95 per month) if prepaid by them for a year for their clients. A number of dealers used this to give away a free year of Internet access with every automobile sold off of their lots, or with a selected model. It was used as a loss leader and a potential closing tool, but it also gave the dealership an outlet for marketing oil changes, tune ups, etc., to their customers."

Some respondents suggested that refunds and prepayment don't mix:

[RF asked] "I'm assuming nobody offers refunds for any cancelled prepaid service, right? I would assume you provide service through the end of the prepaid time period, but no refund for early cancellation."

[MS agreed] "We don't offer refunds beyond a 30-day satisfaction guarantee."

Others contended that you've got to allow for refunds, regardless of the payment plan:

[GP argued] "It does not make sense to refuse to refund for non-use. We charge a $30 setup fee (waived as a special incentive) and deduct the month-to-month pricing for months used."

[KH agreed] "If someone cancels service, we prorate the refund based on the actual term of service. If they prepay for a quarter and quit after the first month, we refund the difference between what they paid and the standard $19.95 monthly cost."

[JG advised] "Offer a prorated refund of prepaid services if a customer dies or moves out of your service area. By putting such a provision in your prepayment policy, you appear eminently reasonable to your customers (something that is good for business) and these provisions will only be invoked once in a while."

—End