It’s all over the place, every site seems to offer Afterpay and us Aussies love using it.
However, there is a catch, a big catch.
Afterpay customers don’t pay interest (just late fees).
That means us, the eCommerce business, has to pay (Afterpay isn’t doing this out of the goodness of their heart!)
The fee varies, but it’s normally around 6% of the transaction.
Now 6% doesn’t seem massive. But that is 6% directly off your profit.
If your site is turning over $1,000,000AUD and your Net Profit (money left over after everything is paid for, but you still have to pay tax) is $150,000, then you add Afterpay, take 6% off that $150,000 profit to use Afterpay, which is $9,000.
That is $9,000 straight out of your pocket.
You can by a half decent car for $9,000!
You’d have to see a pretty good lift in sales to offset that cost.
When to use Afterpay
If your customers are very price sensitive, say looking for discount furniture, and money is tight, it makes sense to use Afterpay. It will most likely lift sales and justify the cost.
When not to use Afterpay
If you sell items at a low price, say $20 slaps.
Firstly it would look weird saying “4 easy payments of $5”.
Secondly if your products are all sub $30 then it’s likely your Gross Margins are low and taking 6% off that will smash your profit, leaving you feeling devo!
If you sell high end products.
Selling high end handbags for $1,000? Most people who can afford these won’t only buy from you if you have Afterpay. They might use it, but you’re giving away 6% of the profit on that transaction.
But all my competitors use it!
At the risk of sounding like your Mum…
“Just because everyone else is doing it, doesn’t mean you should”.
If you have a good justification to use Afterpay, then do.
Just be aware of the cost to you.