When you're providing a brand new service that's different from anything ever done before, what fee do you charge? And how do you charge it?
At Cloverly, we've spent a lot of time thinking (and arguing) about those questions. We've come up with what we think are our best answers. However, they occasionally lead to what we call the 26-cent problem.
To explain that, we'll start with a summary of what we do. We provide Sustainability as a Service—an easy way for people to use carbon offsets and Renewable Energy Credits (RECs) to compensate for the carbon footprint of ecommerce deliveries and other everyday activities.
Our API can do that in a lot of ways. Most commonly, retailers integrate Cloverly into their online stores. Here's how that works:
At checkout, consumers get the option of voluntarily paying a little extra—usually less than a dollar—to green their shipping. If they opt in, our API shows them which offset or Renewable Energy Credit we purchased and how much it cost. The cost varies by carbon impact, which we calculate using such factors as shipping distance and package weight.
We also show consumers the 25-cent per-transaction fee that we charge for doing the calculating and offsetting.
Sometimes a small carbon impact + an inexpensive offset or REC = a 26-cent charge. That's the 26-cent problem: when 1 cent goes for offsetting and 25 cents goes to us. It can seem as if Cloverly is making big profits. (We wish.)
We could have solved the problem by being less transparent—by not itemizing our fee, or by charging a subscription fee instead of a per-transaction fee. But that's not who we are. Transparency is important to us.
Besides, the transactional model seems fairest to our customers. You pay for Cloverly's services only when you use them. It's a typical payment structure for an API company (think Stripe, for example). We set the 25-cent price point because it's what we need to run the company.
More precisely, it's what we'll need to run the company at scale. At the moment, we're not making a profit at all. We're not even covering our expenses.
We launched less than a year ago, on Earth Day (April 22) 2019. So we're a startup. Like virtually all startups, we're operating at a significant loss. We haven't paid back any of the millions of dollars that we've received from our investors—not a single quarter's worth. (We should point out that our investors are happy with our progress; they've given us a second round of funding.)
Here's the real issue embedded in our 26-cent problem: offsets and RECs should cost more. They help pay for projects that reduce or avoid carbon emissions. So we'd prefer that they generate more money, because that would be best for the planet.
If you know all about offsets and RECs, you can skip the following two bullet points. For everybody else, here's a quick explanation of how offsets and RECs work (for a more in-depth explanation, click here):
- Offsets: A carbon offset certificate represents the reduction of 1 metric ton, or 2,205 pounds, of carbon dioxide emissions. The emissions may be reduced through capturing and destroying a greenhouse gas, producing energy using a clean and renewable resource, or capturing and storing (sequestering) greenhouse gases to keep them out of the atmosphere. Buying offsets helps fund projects that do those things.
- Renewable Energy Credits (sometimes called Renewable Energy Certificates; the European equivalents are Guarantees of Origin, or GOs): Each REC certifies that 1,000 kilowatt-hours (1 megawatt-hour) of electricity has been generated by renewable means and delivered to the electric grid. RECs represent the rights to all of the environmental benefits of generating energy by clean, renewable means. Again, buying RECs helps fund solar and wind farms and other renewable-energy projects.
The market determines the price of offsets and RECs. As Cloverly becomes a household name and helps green more and more activities, that will drive up the demand, which in turn will drive up prices.
We'd love that! We're working toward that. We want to get big enough to move the market in that direction.
Until then, every once in a while we'll have a 26-cent problem.
We've considered other pricing models. And we're always open to suggestions for how we could do it better. (Seriously. Contact us at [email protected].)
But it's important to us that we itemize our fee separately from the cost of the offset or REC. We do that because we want to be transparent.
If that causes a 26-cent problem—if that inspires someone to say, "Hey, how come 25 cents is going to Cloverly and 1 cent to the offset?"—then we welcome that. It's an opportunity to explain how we're trying to make carbon offsets and RECs more expensive so that more money flows toward what we all want: sustainability.