Low pricing models are on the upswing.
You will see more in the coming year than in the past. They love to pitch “active user”. Low entry price per seat, which is tied to a range or bundle of seats (depending on the vendor).
But, as they say the devil is in the details or the details are in small print or what we really want are higher numbers or to flip you into this or that.
Active user/per month and the LOW DOLLAR YOU SEE on the screen
I’ll openly admit, when you see it, you are drawn to it. It seems so tempting, so cheap, and so easily accepted. Heck, you want to go right away with it.
Here is the bonus many, many folks miss – the smaller print. It is visible on the page, but it is significantly smaller than the big low price dollar amount.
What it says is “per active user/month (per) – billed annually.”
The word you should be paying attention to – “billed annually.”
- If the vendor is following a bundle model, the number of your actual users versus what you paid for the bundle, isn’t relevant. You tell them you will have 300 active users. But the bundle is 500. And the price per active user is $8.
The standard in the industry. It has been around since systems online first launched. You pay for the bundle. Don’t hit the numbers? Too bad, you still pay for that bundle. Let’s go back to the 500 seats angle. You pay for 500 seats. You never hit a total of 500 seats for the year. Maybe you land a total of 482 seats. You still pay for 500 seats. There is no range.
Deeper Dive – Here is where the trick with low PRICE View and a Bundle Model TWISTS
Naturally using this model, the number you should look at is the 500 (since you are paying for 500 seats, even if you do not use all of them). Therefore the $8 per seat is misleading.
If you end up with 300 people, but you are a bundle of 500 seats, you REAL COST is $13.33 a seat. What if you tell them it is 200 people (active users). REAL COST to you is $20 per seat.
Range Model using the LOW PRICE View, billed *annually
Range pricing – There is a range.
For example, maybe from 1 to 100 seats the cost is X dollars per seat. Then from 101-500, the cost is X dollars per seat (but should be lower than the previous). In other words, maybe for 100-400, the cost per seat is $50.
At 500-1,000, the cost per seat is $40 per seat. Is it a good deal? Not really.
Because if you land a total of only 750 active users, you are paying the same cost for someone who has 505 seats.
And that person at 505 seats is paying the same cost as someone at 1,000 seats. For the 505 person, it might seem like a good deal. At the 1000 seats, ehh not so much.
The general premise when it comes to pricing is the more seats you have, the lower the price point per seat. If I use range pricing, that can be tossed out the window – because everyone pays the same price point per seat (within that range). At lower number levels, it isn’t such a big issue, generally speaking.
Let’s return to the lower seat angle – and here is another take on it.
Vendors who list the lower price points per seat typically will cut off at a certain number. Maybe they show you the price per seat up to 1,000 seats. Maybe 2,500 seats. Then you have to contact them.
I know what you are thinking, “If they are charging me $4 a seat for 1,000,then at 5,000 it will cost me $1 a seat.” I mean, who wouldn’t think that way.
But, you most likely will come out disappointed. I have seen proposals from vendors who pitch low for the entry point into a system, and then turn around and the proposal at a higher number of seats, when calculated is significantly higher per seat.
One vendor listed an entry price on their site for less than several dollars. For that price point you got ABCDEF.
But at the next tier, which was “you contact us”, you got everything, which really wasn’t that much more (and used the infamous, “unlimited courses” and “unlimited storage” – which 85%+ include anyway) and the price when figured out, was closer to $30 a seat.
Where it hurts people – are those who believe that the “contact us” for that new tier of pricing, will mean that the number will be much lower than the price seen on the site at the lower user base. It does happen, but it is rare.
Then, when comes to competitive pricing it is extremely challenging for the other vendors, who do not follow that type of model to match (as it relates to price) and not necessarily features, capabilities, etc.
Wait, There’s more!
Whoa. Head spinning? Getting motion sickness? Feel like you got bamboozled? You are not alone.
I will state first and foremost, that pricing is arbitrary. There is no magic formula vendors use to get to their pricing. Yeah, they can say that, and sure, they should include various factors, but there are some vendors out there, who if they can get you for $50 a seat, they will.
As I have noted before, I once had a call with a well-known LMS vendor who started off their cost to me at $49 per seat. When I balked the number dropped. By the end it was $9 a seat. And yeah, they still made money off of me.
Here is the MORE – Active – billed annually, part two
Let’s say you go with the 300 seats in a 100-500 range listed on a vendor’s site. You pay $6 a seat. It is billed annually. Which means? $1,800 USD. Usually paid up-front BTW (sometimes the vendor bills in multiple periods).
You end up on average of 250 seats. Do you get a refund? If you do, you are lucky, because most folks do not.
Now, you paid that $1,800 up-front. You averaged 250 seats. Your REAL COST? Anyone? Anyone? $7.20 a seat.
And with that price point of even $6 a seat, I can assure you, they are making a profit (unless, they have zero concept on how to generate revenue and markup).
Always look under the hood
At low pricing models, always look to see what is included. At the “contact us”, you get it all (at least in the majority of vendors that follow this mantra).
One vendor whose product I like, charges extra for a multi-tenant. Another charges extra for rules and notifications (usually included at any system, regardless of price point – and a standard feature IMO).
I know of another vendor who gives you the multi-tenant, BUT if you want to skin/brand each child it is an extra fee. Uh, the whole point for a multi-tenant is the children side of the house and the inclusion of skinning/branding each child differently. Without paying for it mind you.
Support is all over the place with these models. Some are e-mail only. Others – support online (i.e. training videos, knowledge bank and you are on your own). Want higher end support for some of these vendors? Call them. What you get will be a lot better but it won’t be free or cheap.
I’ve seen this little diddy on more sites than in previous. Sure, I recall seeing it on contracts from various vendors over the years, but what is new is that it is visible right there on that web site.
Cancel anytime. Yep, you can. Have fun with that. Oh, wait, uh, did you pay annually? Does it say, you get a refund or pro-rated back from what you didn’t use (and paid upfront for)? Because if it doesn’t specify anything or any item for that matter, usually cancel anytime – means you cancel and your money is ours to keep.
Now in a multi-year deal, a cancel anytime angle would need to include stipulations of what you get back when you cancel, but here is another item to remember.
You just spent how long finding that system? And spent how long getting it ready for your audience to use and promoting it and uploading this and that and launching it and solving this and that and blah blah blah..are you really willing to cut the cord after five months? Six months? The odds are low that you do.
Without some specifications, you can cancel, but unless the vendor spells out the conditions, i.e. what you get back or not, it may be money that is gone or the credit angle (which is money that is gone, because the probability of you coming back is zero, so having a credit towards future purchase, is about as valuable as keeping a VCR, because you know, it may come back into the consumer world)
For companies who are at the 1,000-10,000 and 10,000, I’d rather have an opt-out clause with 60 days notice to walk away without penalty, and have any monies prorated if I paid 100% up-front (which I never recommend).
Low pricing models show quite visually, that the price per seat is low.
And in many ways it is.
But if the vendor is following a bundle model, that low price point may not be as good as a deal as you think.
And a range model, it depends where you on that range.
Plus, let’s not discount what you get. Some of it is mere marketing spin. Some are features that standards in most systems. And some, well, are unique – if you go higher.
At the low price model, the “contact us” is the goal. But, only if you are at a certain active seat base.
Otherwise, no need.
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