Eight million dollars. Think about that number for one second. Eight million dollars. It is a lot by far, and it was what a buyer (i.e. company) over paid for their LMS. The LMS vendor got away with charging an outrageous amount for their system, with a “deal for them”.
$48 a seat. Seems high right? Once again, a buyer paid that under the $4/pp/per month, angle, which equates to $48 per seat. With 1,000 end users. Again, a “deal” according to the vendor.
APIs included at no charge, but our setup fee is $75,000. $75,000 to setup a pre-packaged system, where you get the base configs everyone else gets? What is the 75K actually for? Oh, wait, I forgot it’s a deal.
The Pricing Wars
Whenever a recession hits the e-learning industry, and especially at the learning system market, pricing should drop. Rates should be lower, and services provided expanded. It occurs in other markets, as a whole, but when it comes to the learning system space, it isn’t always the case. It finally took hold, one year after the financial crisis began (systems across the board), with some early cutting, and rest waiting.
When the economy improved the last time, pricing went up, freebies became feebies. And the seat pricing bounced up to new highs (there were exceptions).
COVID-19 has made an impact in the learning system space. Overall, a chunk of the vendors are seeing lower numbers than initially projected, and while there are cases where some vendors are “doing well” by in quarterly or H1 sales (first six months) with numbers showing higher than the year before, the majority as noted are not.
Thus it would be easy to think, that pricing and thus the price wars to land you as a client would be in full swing. Sadly, it is just no the case.
There are vendors in the industry who are known to undercut or under bid if you will, their competitors to just win the deal. As the buyer, you are likely fine with that, after all, any system is a big ticket budget item. The vendor does it, because they are playing the numbers game (more clients gives the impression the system is stronger/better which means they will land more clients – it is a perception that actually works, even if the system isn’t as good as the perception).
The undercutting though, when you really look at the numbers, can be misleading, because as the buyer, you are seeing the final proposal and trying to do an apple to apple comparison of the numbers between the remaining vendors you are examining.
Rule number one in any search of systems, is to get a system that is within your budget. It can be your dream system, but if it is outside your budget, then you can’t afford it, and you need to move on. Sometimes you can negotiate it lower to get within your budget, other times you can’t – the case being you are so far apart and where you need it to be, and what they are charging, that is not even worth an attempt at negotiation.
If the system is within your budget, and all three (for example) meet within your budget, the tendency is go for the cheapest of price. However, let’ say the cheapest is lacking a couple of features you really want, the middle price has all, but the salesperson didn’t seem like they knew what they were doing, and your gut is screaming “Warning!”, the one that still fits into your budget is higher than the other two, has all the features you want and need, and has it all together – they get you.
If procurement is in charge, you already know the outcome – the lowest price wins. And vendors who figure out that procurement makes the final decision will play that to their advantage, hence the under cut to land, even if their system is not ideally who you want. If your L&D, Training, HR, Sales or another department/division overseeing the e-learning and learning system make the final decision, then selecting a system that meets your business outcomes the best, and ideally has all the features you want (sometimes, the feature you want is on a roadmap), and is within your budget is the route to go, with a caveat of course.
Pricing – What are the best deals?
With the pandemic raging on, it is easy to assume that the pricing on that deal is going to be recognize it. The truth be told is that pricing by a vendor is not based on some secret formula. There are vendors who, okay the salespeople, that if they can charge you more , and you buy it, then that is a feather in their cap.
A very well known vendor, who had a sister system, played this game. When clients were interested in purchasing content from that secondary entity, the usual was that they would get the sister system for free. That was the process. Buy content, system comes free. However, the primary vendor, had salespeople who would charge clients the sister system on top of the purchase of the content.
When I asked the VP of Sales about this, a chuckle came out, followed by “well, we do have some agressive salespeople.” If you think this is only a couple of people, and that this only happened with this system, the same vendor (the sister system, but same parent company) followed the same angle with another solution they sold. Buy the content, get the system for free, is what was the actual sales route, however, there were customers who actually paid for the “free” system, because the salesperson presented the proposal as such, and the client, unknowingly signed without every questioning it.
Most salespeople you will find in this industry are fair and honest, but let’s not kid ourselves, that some, left the scruples in their car, next to the fuzzy dice.
I am a huge fan of transparency pricing, however, when a vendor posts their pricing it is usually listed for total seat numbers up to a point, with the “Contact Us” for Enterprise pricing. The problem here is that the vendor identifies what they deem as “Enterprise”, thus you may think that 500 which could be listed in that transparent pricing on their site, is the price, but when you go “Enterprise” and the vendor sees 500 seats as Enterprise, you will not get the same price that you see on the web site.
Right now you are probably thinking, how is that possible? Well, there are vendors who have “add-ons” and when they quote “Enterprise” those add-ons are just in the quote as part of the system. Whereas in the transparency you see on the web site, doesn’t list those add-ons as coming with the system.
A trend that has been continuing for those listing transparency pricing (as a whole) on their site, follow a SaaS model where they show what you get for that price per seat, with some offering a comparison chart to fully show the differences in the price structure.
There tend to be two common approaches that one sees in the “transparency” pricing comparison.
Lower number of seats have less features that the mid-tier or higher number of seats (again, with “Enterprise” not showing the price, but showing everything you get as part of that invisible price).
The lower number of seats has the same features as the other seat tiers, but less of the perks if you will. For example, at a lower seat level, social is an additional cost (noted as optional), APIs are optional (which means an additional cost), base support, whereas in the middle you get some of those perks that otherwise you pay for in the lower tier, so, social is included, one API for free, the other more, and so on. At the higher seat level, again, you get more, but you may have some optionals. Enterprise – congrats, everything is included.
The Transparency seat range though is where confusion begins, because and here is why a comparison of one vendor pricing versus another (assuming both are visible on their respective sites), can create a secret whammy.
Vendors who will not go below 500 seats but still list transparency pricing may go with this approach: Lower (up to 500 seats) Mid (Up to 750 seats), High (up to 1,000 seats) Enterprise – Call Us. This is just an example, so their seat range may look like this – Low (Up to 100 seats) Mid (up to 250 seats) High (up to 300 seats), Enterprise call us.
In the latter example, you will quickly figure out that in this example, the vendor sees Enterprise as 301 or more seats (one user name, one password). Whereas in the first example, Enterprise is 1,001 or more.
“The up to” is nice and vague, and what the real angle here is (and a vendor will never admit this to be the case, so don’t even ask) is that if you were to compare shop between the three pricing ranges, with an “up to”, you could easily jump to any of the tiers. After all, if you have 100 seats, that still slides you under the mid and higher tier. If you have 225 seats, you slide into the mid and upper tiers. And since you receive more benefits or pluses in the higher than the other tiers, it is very common to push towards that higher tier. Especially if the pricing stays within your overall budget.
The “Most Popular” is another spin that some vendors use in the transparency pricing. When you see “Most Popular” what this is really telling you is that the vendor wants you to buy this tier (of those shown on the site). That lower tier is more of base, but “Most Popular” which constitutes what exactly, is the ideal. After all, this is a perfect propaganda technique of “just like you and me” and “bandwagon” and plays into neuromarketing, which is based on how your brain thinks.
A vendor won’t say “low” of course, they will come up with another term that is more visually appeasing,
One final note about “transparency pricing” – it will always state in small text “per annual”, this means you are paying up-front 100%, so even if you never hit that total number (say 500) and you stay at 415, you are paying for the 500, and there are no refunds.
Vendors who say you only pay for usage, but you pay up-front, isn’t going to give you a refund or a credit, so be aware. If they say you only pay for usage, thus if only 5 people use it for the whole year, have them provide in writing with details how that works, process, etc. – Never assume that just because they list “per usage” and say to you how it works, that they will stand by that. Salespeople leave.
What are you paying and what you should be paying
Every vendor sets their own pricing. Some provide their salespeople will a lot of leeway, others do not. I have seen “you are getting the best deal” on proposals from readers, in different parts of the world, but with the same vendor, and each of them had “the special deal” price, which was exactly the same for the other readers. This means that everyone in that seat range got the same “special deal”, or the same deal that was on that spreadsheet the salesperson was reading.
Just as when you lease a car, the salespeople today, are looking at a computer screen, with pricing pre-defined. Some have a bit of leeway with the numbers, others don’t – hence the “let me talk to my manager” approach, if you are starting to back away from a deal. In the learning system space, it is rare for someone to say “let me talk to my manager”, although if you are big enough in user base, they will need to take time to talk to their VP of Sales or whoever oversees sales to work out a pricing deal. After all, if you have 100,000 users I can guarantee that isn’t going to be sitting on their price sheet, so they need to talk. Sure, some will toss a number out there to see if you will bite (their sheet may say over 25,000 users), and when you don’t – and you won’t want to, has to talk to the higher ups.
The Price Sheet
For those vendors who use one, and most do – it might be a spreadsheet or another document form, the salesperson is just going to quote you what is listed for them.
I mention this, because any vendor salesperson who says, “well, I can’t give you an estimate, and your seat numbers are 5,000 or less” isn’t always being on the up and up. If you are reading a spreadsheet with your pricing on there for say 5,000 seats, then you can give an estimate. When you bring in someone to give you an estimate for moving, they don’t say, “Sorry, I can’t give you one, because I need to really see how much fits on our truck,”, no, they give you an estimate based on what is on their handheld mobile screen.
Some will play with the numbers by a percentage, but they already know what they can do and can’t do to close the deal.
The same applies to vendor salespeople (up to a certain number of seats). I can tell you that I have seen pricing sheets that go up to 25,000 seats, and then again, anything higher has to go to the higher up. A couple of vendors I know, have their pricing sheets covering up to 50,000 seats, but gives their salespeople a little leeway.
What you can expect to pay for
- Seats – Guaranteed. When you see a proposal nowadays, the vendor will list it as price per seat, per person, per month. Hence the lower number that is visible to you.
Example: $5/p/m – This means that for the seat it is $5 per person (one user name, one password) per month. The number you will be paying is really $60 for that seat, which is very high. If the vendor was to list it as $60 per seat, your eyeballs would pop out of your head, and you would pass. But, just $5, seems so low, I mean that is the cost of a sandwich in some cities, so that’s not bad.
There are usually two price models that most vendors follow, when it comes to seat pricing. There are people who list it as “licenses”, but really they are talking about seats.
Model A – The most common is referred to as bundle pricing. This is where you pay for X number of seats and if you do not hit the number, you still pay for that total number. Example: The bundle is for 1,000 seats. You end up with 855 end-users. You are paying for the 1,000 seat bundle. No refunds. Vendors can spin the bundle in many ways, from you pay only for “usage” – as noted way above, but oh, you are still in the bundle, after all, they do not care how often Johnny uses the system, they only care about Johnny having that seat.
Model B – Range Pricing. A newcomer in the last decade that has continued at a fast pace. In Range Pricing, there are two methods.
Most Common on Range is where the pricing is say between 100 and 500 users, you will pay X a seat. If you are 350, you still pay the same price as if you had 100 or if you had 500. If this sounds more like bundled pricing – guess what? You are right! Just a different take, because it seems so much better.
Range Version 2 – You are in the range of 100 to 500, but the vendor runs a calculation at the end of where you end up paying. It gets very confusing, because let’s say you end up at 350 seats, but the vendor makes you pay 100% up-front, and since refunds are not the mode of operandi here, the vendors who stick specifically to this model, may spin the second year, on “credits” the difference, or I know of one vendor who says they will offset.
Vendors as whole, are not fans of V2.
Alternative to Seats
Pricing Model – The worst one – AVOID.
The consumption model is a very tiny percentile of vendors will do (and the numbers are really really low) is not the route to go, it is too vague, and I promise you the moment you have one learner go past the consumption amount, the next tier of “consumption” won’t be the same deal you think you are getting. I once did a comparison between a consumption and seat model with one vendor, and found the consumption to be higher, because the moment someone consumed, which is defined as looking even for five seconds, the fee bounced up enough that you are being ripped-off.
Back to what you will pay for (Majority of vendors in the market – so always verify)
What should you pay for your seats? In today’s Pandemic World
There is no hard and fast rule on how much a seat costs (per person, per year), but in general, if you are paying anything above $50 per seat, regardless of the number of seats, you are being ripped off.
- 100 to 500 seats – The avg. range is $30-$35 a seat. Some vendors will push into the low 40s per seat, especially at the lower number of seats. There are vendors who if you are below say 500 seats are not interested, and thus you can move on.
- 500 to 999 seats – This is still getting into “grey area” of seat pricing because with the exception of a couple of vendors in the industry, you are seen as small business (although at 999 you are close to mid-market for a vendor who views “Enterprise” as 2,500 or higher). The avg range still slides into the $30-$35 per seat, but if you are asked to pay anything higher than $40 per seat, you are enjoying a bad deal.
- 1,000 to 2,500 seats – It is murky at best, because vendors are seeing either 1,000 plus, 2,500 plus or 5,000 plus as Enterprise, so pricing reflects that. Average range – $20-$30. Again, some will go higher. In a recession though, this is a fair rate. Pre-COVID, you could get away with the 30-35 range, and be just fine.
- 2,500 to 5,000 seats – Again, there was then, and this is now. In the new business environment the range is $15-$20 per seat, with some vendors dropping in the lower teens at the higher 5,000 seat range. If you think you are going to get like $3 per year at 5,000 seats, uh, not likely. At 5,000 seats if you are paying anything higher than $20, it is borderline ripoff, at $25 or higher, contact me, I have some swamp land to sell you in Florida.
- 5,000 to 10,000 seats – Another very murky area, because there are some vendors who view the 10,000 mark as Large Enterprise, which in reality, it really isn’t. Avg price range is $10-$15 per seat, with many vendors dropping under $10 at the 10,000 seat mark.
- 10,000 to 25,000 seats – Let Large Enterprise begin as most vendors see it, the range is $5-$10, again, with some going into the $15-18 range at 10,000 seats, and $7 to $10 at 25,000 seats. Rule of thumb if you are paying anything higher than $12 a seat at 25,000 seats, it better include a gold toilet. And not fake gold either.
- 25,000 to 100,000 seats – Large Enterprise. Seat range is $5 to $10. I know you are saying, wait that is the same as the 10,000 to 25,000 and yes, you are correct. An ideal number at 100,000 seats is around $3 a seat, but you have to be very well known to score such a deal, because vendors love big names and a big name client can get a better deal than a lesser known name, that is just reality here.
- 100,000 seats to 1 million – $3 to $10 a seat. At the 1 million mark, you are likely to see more in the range of $1 to $1.50 per seat. Again, there is no “everyone does the same” rule, because if I am tossing in add-ons as part of your deal , I might be offsetting that with my seat cost. Will you find vendors charging $15 a seat at 100,000 users? Oh, absolutely.
- 1 million and up – 75 cents to $1.50, In all my years studying pricing and seeing proposals, the best deal I ever got (representing a client with 5 million users), was 25 cents per seat per year. And that was before the discount was placed. If you are at the 1.5M user mark and the vendor is charging you $5 per seat, I recommend you go to the nearest virtual carnival and try your luck at tossing a ring around that bottle.
APIs – Many are free or they offer a you get one API or one intergration for free and then at Enterprise it is unlimited angle. That said, the range is $1,000 to $2,000 for vendors who do charge. Some will offer at $500. Honestly, unless it is not well-known for the API or not an Open REST API, or the integration is with some system that has been massively configured, there should be no cost. This is negotiable.
Training – Usually you get a couple of sessions for free – for the administrator, not the end-user. Then they charge afterwards. You can negotiate on this, and get x sessions every few months for free – for your administrators.
Setup – Covers implementation, upgrades, maintenance and basic config – skinning/branding, adding your logo, and with some vendors some minor tweaks. Most pre-packaged systems, even minor tweaks is a stretch, so always ask the vendor. There are vendors who do not charge a setup fee, however the majority do. With a pre-packaged system (aka turnkey or off-the-shelf), the setup should never be more than $5,000. I mean, seriously, it is not like they are building this from scratch.
For a system that offers mass configuration or extensive configuration, your setup fee can skyrocket, depending on the level of configuration you want. Some vendors have tiers of configuration. You should expect anywhere from $10,000 to $100,000 for setup – for some configuration to quite a bit, but not at the level of extensive. At extensive you can expect to pay in the range of $150,000 to 1M or more. If it is going to take a year, uh, yeah, that isn’t going to be $85,000.
Best Time to Buy
The best time to buy is when the end of each sales quarter takes place. If the vendor is on a fiscal calendar year, this means that for Q1, March is the end of that quarter’s sales cycle, so better deals are more than likely to boost numbers. If the vendor is not on a fiscal calendar year, a common is May to April. How can you find out? Ask the salesperson whether they follow a fiscal calendar year or not? If not, what is their fiscal year? They may not know, so have them ask someone. Sometimes you can just ask in the year, what are the end dates for each sales cycle. And yes, there are salespeople who will tell you, after they ask why. Don’t say, “because I know I can get a better deal,”, rather you can just state that your company goes with a fiscal calendar year, and you are trying to figure out some financial projections with your budget. Is this response ambiguous? Yep. It is meant to be confusing and hard to figure out? Yep.
And rarely will a salesperson ask you what you mean by that, they will just go with it.
Always itemize everything. Never lump sum of Seats or add-ons – always ask for specific details – they can provide it. Discounts are three-years, and should cover each year. Vendors love to put the discount on year one, knowing that your seat numbers are often lower for that first year, than subsequent years, especially if you are doing B2B/B2C.
If you are a non-profit 501C3 or in education, many vendors offer a discount. Always ask.
Remember a great deal, is only a great deal, if the numbers support the system you are getting.
If you think you are being taken to the “cleaners”,
Compare equal to equal on what you get in the system compared to the other system.
Actually, you should do this anyway.
Because “buyer beware” isn’t always applicable.
Especially in small print.