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Changes to AD2AD Business Practices

What’s happening?

AD2AD is making modifications to some of its business practices.

Why are these changes being made?

Major changes have occurred in the newspaper classifieds business since AD2AD developed its business model and processes seven years ago. As a result of these changes, over the past 24 months, AD2AD has begun to experience significant losses and cash flow problems. In order to keep AD2AD profitable and operational, some practices will need to change.

What changes in the classifieds business have fostered the changes to AD2AD business practices?

The main elements are these:

  • Increase in end-customer credit card challenges and chargebacks
  • Increasingly irregular publication schedules of many client newspapers
  • AD2AD clients ceasing publication without notice
  • Higher costs of services utilized by AD2AD
  • Lower prices being charged by client newspapers

Can you give an example of how these factors affect AD2AD?

Here’s a recent example:

A customer placed an ad in a weekly newspapers that publishes about 25 ads per week.
The newspaper doesn’t charge customers for basic ads, only for upgrades (big type, pix, etc.)

From these upgrades, the newspaper nets about $30/week
AD2AD’s service fee to this newspaper is $ 0.40/ad. AD2AD nets about $10 week.

The customer made a large ad with many extras, and set to autorenew, at a price of $15/insert.

AD2AD sent $15 in revenue (minus the .40 service fee) to the paper for four weeks: The newspaper now has $58.40.

The customer saw 4 charges on his credit card statement for AD2AD, and called his credit card company to claim a fraud.

The credit card company has raised its rates, and charged AD2AD $45 for each challenge.

AD2AD responded to the challenge with documentation of the ad.

The customer called the newspaper and demanded a refund. So the newspaper refunded $60.

The customer then denied to the credit card company that the charges were legitimate. The credit card company issued $60 in chargebacks. AD2AD will dispute these, claiming the amounts had been refunded, but the chargeback has been issued, the money withdrawn from AD2AD’s account, and now begins a long bureaucratic nightmare of getting the chargeback reversed.

 

Here’s the situation at the end of the these transactions.

The newspaper has an AD2AD check for $58.40

AD2AD has lost:

$180 in challenge fees

$ 60 in chargebacks

$ 58.40 on refunds made ON THE SAME TRANSACTIONS

In other words, at this point AD2AD account is down about $400 due to the dispute over this ad.

AD2AD will attempt to recover some of these charges from future revenue generated by the newspaper. It will take about 20 weeks to recover, based on the newspaper’s typical  revenue stream.

Let’s say this is a college newspaper. If the charges happened before a break, it may be 10 or 12 weeks before the weekly revenue stream begins again.

 

Another example:

A weekly newspaper hoping to face a challenge from craigslist decides to change to a free classifieds model, offering some or all of its ads at no charge. The number of ads goes up, but AD2AD has no way to capture its service fees, since there is now no credit card revenue to capture. All too often, this happens as the newspaper is on the verge of ceasing publication, which it may do without notice, leaving AD2AD no way to recover its fees.

 

How do incidents like this affect AD2AD?

Because AD2AD settles payments based on when an order is placed, the newspaper gets an AD2AD check for the revenue. If the newspaper issues a refund in a later week, the refund may be issued out of AD2AD’s revenue account even though the newspaper has no compensating revenue. In effect AD2AD allows the newspaper to borrow at will against future revenue, which may take a long time to show up, or never show up at all.

 

Because A

 
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