TRANSACTION, LICENCE AND ADVERTISING FEES: what to look out for when calculating these revenue streams

The commonality between transaction, licence and safekeeping revenue is not obvious, as they represent very different types of business models, but from a financial planning perspective, they include similar types of calculations. The main commonality is that they are dependent on gross billings that are not recognised as revenue, or in the case of safekeeping fees, on a portfolio that is in the customer’s ownership. We have included safekeeping fees in the periodical charges revenue, as they also have strong commonalities with subscription-type revenues.

Advertising fees are quite unique and they can be calculated in very different ways, as an average monthly spending per customer, or based on the increasing advertising capacity of the website.

TRANSACTION FEES

Transaction Fees take place when you sell products or services of third-party providers through your business and it is a revenue model very common among sharing-economy startups or marketplaces. It is worth noting that this applies only in cases when the total value of products sold is not recorded as revenue and instead it takes place when sales can be processed on different payment gateways. This is only an accounting difference, so even if we refer to many marketplaces as earning a transaction fee, this would actually be accounted for as the mark-up or difference between revenue recognised, which equals gross billings, and payments to sellers: in this case please refer to sale of products or services revenue calculations.

Transaction fees revenue occurs when only the transaction fee is recognised as revenue. Here we need the number of active customers to calculate this revenue stream. Calculating transaction fees therefore involves calculating the amount of billings on your platform, unless the entire transaction value is registered as revenue.

The main figures and assumptions needed to calculate transaction fees revenue are:

1. The portion % of your total active customers that will be involved in making transactions
2. The average value of a transaction and its increase in value per year, the sum thereof representing the total gross billings
3. The number of transactions per month/year and its increase per year
4. The type of fees based on the company’s business model
5. Customers split % with the portion of customers to whom the fee or fees apply, when there are multiple types. The sum should be at least 100%.
6. Fee amount % based on the portfolio amount as well as any price inflation over the years

Directs costs to transaction revenue usually include only: