“Gouged”: Angry retailers threaten ACCC complaints over Neto price hikes

Business owners who built e-commerce websites through platform provider Neto claim they’re being “gouged” by a sudden change in its pricing structure that will leave them thousands of dollars a year worse off.

Neto — a software service provider for e-commerce websites — has gone cap in hand to customers to stem “significant losses” and will introduce a new model where businesses are billed based on annual turnover.

The Australian company also informed clients it will shift the burden of a weak Australian Dollar by charging in US Dollars, effective April 1.

Daniel Kofoed, owner of Golfers HQ, says his monthly bill will increase by 218% from $88 a month to US$199 ($280), not including currency conversion costs.

“As a small business owner, it’s just not something I can absorb,” Kofoed, who has been a Neto client for six years, tells SmartCompany.

“An increase in costs in an ever-competitive market where customers are demanding lower pricing is discouraging your average small-business owner from going into business,” he says.

“It’s price gouging their loyal Aussie clients.”

Kofoed, as well as two other business owners SmartCompany has spoken to, say they intend to write letters to make price gouging complaints to the ACCC over the price hike.

SmartCompany spoke to two other separate Neto clients who requested to remain anonymous for fear of commercial reprisal.

One multimillion-dollar online retailer said their monthly plan could increase from under $500 a month to over $1,500 after the changes.

“It punishes people, you should be paying for features, not according to how well you are doing,” the business owner says.

Neto has applied a discount to customers which caps monthly increases at $360, this means the actual increase will be lower, at least initially.

Neto chief executive Ryan Murtagh said the discount will last for a minimum of 12 months, adding there are “no plans” to remove the discount “at this stage”.

The price hikes have created a fissure in the Australian e-commerce community, with many taking to social media, review websites and Neto feedback forums to express anger.

However, others SmartCompany has spoken to say they believe the increase is broadly justified.

Edible Blooms owner Kelly Jamieson has defended the vendor, saying its services still represent good value.

“In many ways, they’ve been undercharging for what they’ve been offering,” Jamieson says.

Jamieson will pay more under the changes but did not want to go into specifics when asked.

“We certainly feel the new fee represents value for our business, and we’ve certainly seen, particularly in the last little while, great improvement in service,” she says.

“We have to balance our costs”

In an email sent to Neto clients on February 28, seen by SmartCompany, Neto chief executive Ryan Murtagh said the business needed the extra money.

“We have to balance our current costs while investing in our future,” he said.

Murtagh separately told Kofoed over social media that Neto, which is majority-owned by Telstra, could “no longer endure significant losses” associated with its legacy pricing model.

Three separate clients said they weren’t consulted about the change prior to the February 28 email informing them of the restructuring.

However, the company has been considering the move for several months.

Select clients were informed and asked for feedback on the prospective changes earlier this year, while clients informed last week have just a month to prepare for the hike if they are billed monthly.

Asked whether Telstra pressured Neto into changing its pricing structure, Murtagh said the telecommunications giant holds various board positions as the majority owner of the business and is “party to all decisions the company makes”.

Neto walks back part of change

Under the changes, Neto will migrate all its merchants onto new plans, which are defined by so-called “revenue bands”, determined based on revenue earned over the last 12 months.

The bands, detailed on its website, range from US$79 a month to US$499 a month.

The first band, for clients with annual revenue up to $50,000, starts at US$79 a month, moving to US$199 a month for firms with turnover up to $250,000, US$249 a month at $750,000 in revenue, and US$499 monthly for those up to $1 million.

Additionally, clients will pay an extra $150 per month for every $250,000 in annual turnover above the $1 million threshold.

Neto says it will upgrade clients to larger plans automatically when their revenue passes one of the thresholds, recalculated monthly.

In a statement, Murtagh said Neto would be “doing a disservice to the entire community” if it didn’t “properly manage” its business by changing its model.

While everyone SmartCompany spoke to expects an increase, Murtgah says about 20% of clients will experience a decrease in fees.

In return for the price hike, Neto says it will “include greater value with features such as unlimited products, warehouses and users” in the plans.

But clients who will be forced onto “large” plans have criticised the new structure for throwing in features they don’t need, with the primary addition being more sales channels.

However, just hours after SmartCompany sent a series of questions to Neto on Monday, the business sent a new email to clients revising some of the changes.

In this second email, sent on Monday afternoon, Murtagh said the “medium plan” threshold will increase from the original US$100,000 in annual turnover annually to US$250,000.

The medium plan is US$50 cheaper than the large plan at US$199 a month.

“After speaking to many Neto merchants, we realised that the revenue band for our medium plan was too small, causing them to be migrated to large plans without requiring all the features that came with it,” Murtagh said.

An expensive proposition

Several clients reported being in a difficult position where they no longer viewed Neto as affordable but face high costs associated with migrating to a new provider.

“[Moving] would great a lot of headaches,” one business owner said. “It’s a massive cost.”

“That’s what they’re banking on, people being so invested in the platform that changing is not an option.”

Kofoed agrees, saying he will be forced to move but will have to take on a second job to afford a switch.

“It’s fantastic they’ve got long-term goals, but why I as a business owner should have to fund their grand plan to expand into America is unfathomable,” he says.

Still value for money?

Jon Burrell, general manager of national camping chain Tentworld, says his costs will double under the changes but maintains Neto is still “extremely competitive” with other providers.

Tentworld booked $42.8 million in revenue for 2017-18, an increase of 114.7%, meaning it is in store for a significant fee under Neto’s new model.

“At first, I admittedly was quite angry about this,” Burrell tells SmartCompany.

“However, we had not experienced a price change since we signed up, over five years ago.

“Our revenue, as you are aware, has increased dramatically since then, so our reduced cost of operation … has been great for us,” he says.

“While I do not really agree with how they’ve managed these changes — I think more notice, and more gradual would have bee appropriate — I can see that they’re playing a bit of catchup.”

Jamieson says there are pros and cons to all software solutions, and while she says she’d prefer an Australian business to charge in Australian dollars, a revenue-based pricing model is not uncommon in the industry.

“A lot of e-commerce platforms charge per transaction … technically this does make it fairer for everyone — if you’re doing well you pay more,” she says.

Some merchants remain concerned the currency changes will result in extra conversion fees, particularly if paying bills via credit card.

Murtagh defended the switch by saying it’s the market standard to charge in USD.

“Billing in USD is becoming a standard currency in SaaS globally. You will find that leading Australian technology companies such as Canva, Atlassian and Buildkite all bill in USD. The same is true for many major Neto competitors,” Murtagh said.

Clarification: This article was updated at 1.28pm AEDT March 5 to clarify details of a discount Neto will apply for existing customers capping fee increases at $360 per month for at least 12 months.

NOW READ: The e-commerce platform that’s dominating the market

NOW READ: E-commerce tips from online retail experts