Whether you are a martech vendor, or just embracing the subscription economy, your firm relies on a fair pricing model.
Sometimes I see firms start life with a pricing model that made sense then, but now doesn’t make sense as the market shifts.
Data Vendor Renewal Story: Needs Change, Product Stays the Same
Many years ago, I was in charge of renewing our prospect database. I saw we were spending about $29,000 per year for 30 users. Their model was per-user-year plus a level of access to the database.
When I evaluated who really needed access based on real use and interviews internally, I saw we only needed 10 users. I told our salesperson we would reduce our need and I wanted more access to the database. Without even objecting, he reduced our costs to $15,000/yr and gave us more of what we wanted.
That’s great for me and the business, but that vendor just lost $14,000 per year.
Now why did these changes occur in our relationship?
- staff reduction and organizational changes.
- reduced budgets.
- Changed our interaction with data: sales teams hardly use the service while each department was pulling in more data automatically for different purposes. So we don’t need more users, we needed better connections with the data.
- Needed different data to support growth.
In theory, the salesperson could have sold me on the value, added connectors, and given me unlimited user licenses and instead charged me by the Record Download or profile levels (email, direct dial, etc). And he could have charged me $29,000/yr for that. Maybe I would have gone with that plan if his product accommodated my new needs.
The value to me and the business was effectively the same — the data — so why not just give us unlimited users when we know that most of the usage comes from 10 people? Was the data worth $29,000 per year to us? Perhaps, but not in the way we were asked to use and value it.
What Should You Do About Your Product and Price?
The lesson here is that he was constrained by his Company’s old style product that assumed value was related to the number of user licenses since it was hard to meter value per record back in the day.
Now think about what your clients are telling you? Does it sound familiar? When I was in Sales, I had a strong notion that many renewing clients were not fully satisfied with the database tools we provided. Sometimes their usage had declined or their users had left. Sometimes it was how they wanted to interact with the data. What usually happened was one of four things:
- renewal with an increase in content at small fee increase.
- reduction in content or price or users.
- renewal with reservations and an attempt to build a direct feed or meet their needs in some other way.
The result was we gave away more valuable data without collecting more revenue. The company stagnated. The pricing model and product itself were stuck behind where the market moved to in terms of how they thought about value extraction.
So instead of just accepting a running retreat, why not modify your services and pricing to be where are clients are? It’s a scary move because it is possible to torpedo the business if the transition is not managed well.
Most SaaS subscription services these days are more flexible to keep up with shifting needs and expectations. But not all.
Martech Subscription Models Are In Danger Mode
I hesitate to call out any particular vendor here, but it’s hard for buyers to justify the value certain pricing models deliver. Sometimes it’s challenging because in MOPS, we may not always be able to calculate that value ourselves! Here are the models and pricing issues I am concerned with.
Price per Record
While this is common for databases, it is becoming onerous in Marketing Automation. Old email providers did fee per email, but that led to variable fees that were hard to contain, so pricing record tiers made a lot of sense eight years ago to entice a switch. Now it seems to be a limiter because marketers are loath to delete records, or it’s just hard to do so. What’s the real value of each record when some are Customers, some are MQLs, and some are unmarketable, but could be useful in other ways?
Price per Email Sent
The old ESP model still exists in some areas. This is often sold as email bands, but what’s the value of each email sent when response rates are under 1%? Marketers really have to know their LTV/CAC data.
Price per Add On
Sometimes this is coupled with a feature price with a per record price. I have mixed feelings because some add ons have clear value, while others do not. Always be careful with this one.
Fee per Registration
The fees for many event tool vendors feel opaque. Eventbrite-like vendors who mostly are payment platforms for tickets do well here because there’s a clear merchant fee for credit-card processing and platform. For large scale event tools, the per reg fee is sometimes couple with a platform fee. What’s the real processing cost of the Platform vs. each registrant? What if someone pays $1,000 for a ticket vs. $0? Should I still be charged the same fee? Is that the same amount of work for the vendor’s system?
Fee per Event or Meeting
Vendor charges a flat fee for a tiered event size or number of items used. Sometimes this works, but if the marketer takes advantage of this with lots of large events that technically fit in the buckets, the vendor loses out.
Fee per Feature or Level + User Scale
Smaller martech vendors and tools like LucidChart tend to do this. You get the famous three choices: Lite, Pro, Enterprise where they steer you to Pro in most cases. Really helps to understand your true needs as a buyer to select the right Feature Tier. Often a Feature Tier has a Per User Scale. Many people feel comfortable with this pricing model because we’ve all been trained to use Software License Seats. But not every user is the same and audits frequently find 10-30% of users barely touched it. Slack is famous for attempting to mitigate this on a monthly basis by not charging for unused seats.
For marketing automation platforms, the per user model is outdated. Some users are just API people, and some barely look at the tool.
Fee per MQL or SQL or Per Meeting
Prospect data vendors and prospecting services will charge for actual value received. I like this, however, it’s difficult to track and remove leads that did not proceed. You have to be very sure of your ability to monitor the funnel with your vendors.
Fee per Computing Power Unit
A variation on the Per Unit model, this is now popular thanks to all the major cloud vendors. AWS in particular combines this with feature sets and database use. I’d like to see Martech vendors use this more because it more accurately reflects the variable costs and real use by marketers. Database costs are incredibly low, so when I’m processing 10 million records for some reason, I want to know it will run quickly. I want to pay for that speed so it doesn’t impact my actual business. Let me know when a martech vendor actually does this.
Now, I understand there are always challenges with metering use as a product ages, but if vendors cannot come up with pricing models which make sense for both parties, someone else will match that need (just like AWS did) and win the business of the future.