[I work at Stripe]
As a practical matter, this guide is somewhat misleading in the sense that it very substantially overestimates what a typical B2B SaaS business pays for Stripe.
For example:
• Cards pricing. The guide assumes a B2B SaaS business accepts 100% of payments via cards. B2B SaaS businesses on Stripe tend to encourage payments via bank transfers and other lower-cost payment method, especially for their biggest customers, and we try to make it as easy as possible for businesses to do this. Bank transfers are priced at 0.8% in the US. The guide states that “additional fees apply for bank transfers, additional payment methods”, which is not true. We encourage users to use alternative payment methods for this reason.
• Stripe Tax. The 0.5% per transaction cost is incurred only in jurisdictions where the business is obligated to collect taxes. For US-based businesses, this generally represents a very small fraction of total payment volume. (And, of course, the tax collection itself is mandatory, and so some tax provider or calculation engine presumably has to be paid for.)
• Stripe Data Pipeline. Including this as a default cost is misleading. It isn’t. While we think it’s a great product (especially if you have a sophisticated ETL pipeline), most Stripe users don’t find themselves needing it.
More broadly, I think it’s important for onlookers to know that OP is the founder of a business that runs on Stripe and positions itself as an alternative to Stripe Billing. They seem to be trying to write deliberately-provocative posts to go viral, as described in this tweet: https://twitter.com/byAnhtho/status/1601197512227885056. Competition is good, and anyone is of course very welcome to analyze Stripe’s pricing. But, in the spirit of transparency, we’d welcome a slightly more realistic analysis.
Stripe Tax. The 0.5% per transaction cost is incurred only in jurisdictions where the business is obligated to collect taxes. For US-based businesses, this generally represents a very small fraction of total payment volume. (And, of course, the tax collection itself is mandatory, and so some tax provider or calculation engine presumably has to be paid for.)
That's obscenely high compared to what we pay one of your competitors for more functionality than what Stripe Tax provides.
Your customers are easily pay a 100% premium over alternatives just to keep everything within Stripe.
Sort of. You need to do a minimum of business in the state, usually $100,000/yr or 200 transactions. I don’t have enough customers in Utah to require tax payments.
I use a 'full-service' payment provider. I send the customer to their shopping cart page. The customer buys the software license from them. And they buy the license from me. They are the 'merchant of note' and collect and remit the VAT/sales tax. They pay me once a month, minus fees.
So how does Stripe tax work? Can Stripe function as the 'merchant of note'? If I am based in the UK and selling to someone in the UK, Germany or the US, will it collect and remit the taxes for me? Or just tell me how much I owe?
Who said anything different or implied they didn’t understand this?
Nobody is arguing that Stripe Tax is not a valuable product, or that the tax landscape is not extremely complicated and worth 0.5% of a transaction.
I am, explicitly, saying that your framing as taxed transactions being “a very small fraction” of US transactions seems false. You are making it sound like the Stripe Tax surcharge will generally speaking not apply to a business, and therefore shouldn’t be used when calculating the amount your company charges.
“ Understanding the state sales tax rules for your SaaS business is difficult due to the many different definitions and categorizations. SaaS for personal use is taxable in Louisiana, Maryland, Massachusetts. SaaS for business use is taxable in Nevada, North Dakota, Ohio.”
Meaning that you don’t have to charge tax in the majority of states. Meaning that it can be negligible. IANAL
From TaxJar, Stripe's own subsidiary, and also the first result on Google:
> Alabama – SaaS is considered a taxable service. Computer software is tangible personal property. (Source)
> Alaska – SaaS is taxable in Alaska. (Source)
> Arizona – SaaS is taxable in Arizona. (Source)
> Connecticut – SaaS is taxable in Connecticut. SaaS for personal use is taxed at the full state rate, but SaaS for business use is only taxed at the rate of 1%. (Source)
> Hawaii – SaaS (and computer services) is taxable in Hawaii. Hawaii’s general excise tax applies to every good and service not tax exempt. (Source)
> Iowa – SaaS is taxable, except when being used for business purposes, then it is exempt. (Source)
> Louisiana – SaaS is taxable. (Source)
> Massachusetts – SaaS and cloud computing are taxable in Massachusetts. (Source)
> New Mexico – SaaS is taxable in New Mexico. (Source)
> New York – SaaS is taxable in New York. (Source)
> Ohio – SaaS is taxable for business use in Ohio and non-taxable for personal use. (Source)
> Pennsylvania – SaaS is taxable in Pennsylvania. (Source)
> Rhode Island – SaaS is taxable in Rhode Island. (Source)
> South Carolina – SaaS is considered a taxable service in South Carolina, as are other charges to access a website. (Source)
> South Dakota – SaaS is considered a taxable service in South Dakota, as are other charges to access software. (Source)
> Tennessee – SaaS is taxable in Tennessee. (Source)
> Texas – SaaS is considered part of a data processing service in Texas and is 80% taxable and 20% exempt from sales tax. (Source)
> Utah – SaaS is taxable in Utah. (Source)
> Washington – SaaS is taxable in Washington since all software, delivered by whatever means, is considered taxable in the state. (Source)
> Washington D.C. – SaaS is considered a taxable service in Washington D.C. (Source)
> West Virginia – SaaS is considered a taxable service in West Virginia. (Source)
SaaS is also far from the only industry Stripe serves. But even if it were, close to half the states require taxes on it in some way, shape or form. Meaning it's not nearly as negligible as you're making it seem.
I also want to reiterate the bar is "very small fraction of total payment volume". Very small really implies single or low double digit percentage. While some of the biggest states are missing, you still have around 40% of the population represented in those states. It seems very unlikely, even with tech's concentration in California, that 40% of the population results in "very small fraction of total payment volume".
OP here. I appreciate the inputs, we're big fans of Stripe at Lago. We operate in the billing space, and are alternatives to home-grown billing systems, Chargebee, Recurly, etc. and Stripe Billing.
1/ Some users use Lago as a complement of Stripe Billing, or don't even consider Stripe Billing, and we built a native integration with Stripe payments.
Out of transparency, the first lines we wrote in this post stated that:
"Disclaimer: This analysis is based on Stripe’s public pricing as of July 21, 2022. Some merchants may be able to negotiate fees or benefit from grandfathered plans. Lago partners with 'Stripe Payments' and can be used as a complement or replacement of 'Stripe Billing'."
2/
> 'write deliberately-provocative posts to go viral'
Thanks for quoting my tweet. I actually shared 2 old articles I wrote in 2021 this week, that made the front page of HN, unrelated to Fintech:
- One on my personal blog sharing what I learnt about press relations, main message being 'don't waste money on an agency if you're early stage' because I've seen this happen too often, and too many founders asked me the same questions about this topic [1] I was actually surprised it was read, as HN is known for being more 'engineering oriented' than 'marketing oriented'.
- Another one about 'scouts' not being necessarily a good thing for founders, with Sifted (TC for EU) which is a position I stand for as a founder and as an investor, and I think Europe should mature towards this topic [2]
The TLDR is: I've been writing about a wide range of topics for a long time, things I like to share, things I stand for and want to have an impact on and was grateful it resonated within my community.
Btw I think the HN ring vote is pretty strong, and HN community very 'fierce' (at times), so I don't think we could have got attention by just 'clickbaiting' and attempting to go viral.
Like any startup, we're excited to share our vision of the world, and this is why we're writing.
Lastly, here are two other examples of content that were intended to spark a discussion in our community (and it did) and don't bring much to Lago as a business:
a/ What not to say to someone who has just been laid off [3]
I wrote it after my partner was laid off and too many people around him just did not know what to say, which amplified the 'grief'. It reminded me of my personal history of grief, and wrote the post. I received dozens of messages of people who have been laid off recently, or whose friend/closed ones had been fired. Founders reached out to say they would share it with their team (it's not an easy topic to discuss).
b/ I recently shared my thought process about moving to the US after YC, as it's a recurring question we have as YC founders based in Europe. This sparked a lot of discussions and helped me iterate on how I approach the question, in a scalable way. I believe other founders learned things by the discussion it sparked, some founders reached out to help me with the US visa etc. Feel free to read it here [4]. Took me some time to write it, but the main ROI was how I've been able to connect with other founders, at the same stage, or 5 steps ahead, and learn from them. And, based on the comments/discussions, I believe other founders in the same situation benefited from this too.
My point is: not all content is written in an attempt to go viral, but I just write about what I believe brings value, and it happens to go viral (whatever you mean by that) when it does have an impact. Regarding my tweet, I think a lot of people wonder how to approach HN, and make a lot of rookie mistakes, and I could also write about what I've learned. This would (if I write it successfully) in fine help having better content on HN.
YC says 'build something people want', I also happen to (occasionally) write things people want. And there's no better gift for a writer.
I think the point here is that this post was optimized to try to go viral. Most startups won’t have 4% as a minimum revenue cost.
For example, you chose the most expensive Billing plan (Scale), which includes things startups don’t need. Similarly assuming the most pessimistic payment mix where everyone is using international cards along with currency conversion, which will never be true. Similarly adding data pipeline.
It’s not “Stripe’s real pricing”, as you’re no doubt aware. That’s where it turns from informative to marketing.
If there’s a way that Lago, or any other Stripe competitor for any product, cuts down on fees, that’s fantastic. There are definitely ways to beat Stripe’s fees on payments, for example, though they’re as difficult as the are transformative.
The point was showing how the pricing and costs adds up.
A lot of founders don’t get what products they use at Stripe and that the cost adds up as a % of revenue.
% of revenue makes sense for payment processing, does it really make sense for SaaS products (billing, tax?) ? What’s the rationale?
About offering alternatives for fintech software (such as billing, tax), with a pricing that does not take a cut on revenue, this is exactly what we are building.
Also the point of my initial comment was that even if you consider this post optimised for vitality, pointing that we are optimising on only that in our content seemed a bit extreme, hence the examples.
For example:
• Cards pricing. The guide assumes a B2B SaaS business accepts 100% of payments via cards. B2B SaaS businesses on Stripe tend to encourage payments via bank transfers and other lower-cost payment method, especially for their biggest customers, and we try to make it as easy as possible for businesses to do this. Bank transfers are priced at 0.8% in the US. The guide states that “additional fees apply for bank transfers, additional payment methods”, which is not true. We encourage users to use alternative payment methods for this reason.
• Stripe Tax. The 0.5% per transaction cost is incurred only in jurisdictions where the business is obligated to collect taxes. For US-based businesses, this generally represents a very small fraction of total payment volume. (And, of course, the tax collection itself is mandatory, and so some tax provider or calculation engine presumably has to be paid for.)
• Stripe Data Pipeline. Including this as a default cost is misleading. It isn’t. While we think it’s a great product (especially if you have a sophisticated ETL pipeline), most Stripe users don’t find themselves needing it.
More broadly, I think it’s important for onlookers to know that OP is the founder of a business that runs on Stripe and positions itself as an alternative to Stripe Billing. They seem to be trying to write deliberately-provocative posts to go viral, as described in this tweet: https://twitter.com/byAnhtho/status/1601197512227885056. Competition is good, and anyone is of course very welcome to analyze Stripe’s pricing. But, in the spirit of transparency, we’d welcome a slightly more realistic analysis.