Growing up in America’s leanest years, my dad sold fruit from a cart before and after school.  It sounds like a tough childhood–and it was–but all his friends were doing the same thing, and he’d often wax nostalgic about the fun they had devising clever ways to fool customers.  My personal fave: “Honeydew! Eight cents apiece; three for a quarter!”  These are my sales roots.

As B2E’s we are most certainly not designing licensing models designed to fool customers, but a curious number of edtech models out there do contribute to customer confusion a.k.a. stress a.k.a. longer sales cycle.  If you’re a startup or considering a new model to ring in the New Year, here’s some food for thought for a license model that will streamline your distribution, not sink it.

I have no rule against complexity in pricing models.  It can become very elegant and fair to offer volume discount scales, packages, multi-building discounts, and other levers that encourage your customer to benefit from larger implementations.  The more complexity in your model will however place a higher burden on your sales resources, and can dictate a direct sales model you hadn’t counted on.

Think about cell phone plans.  It gives you a little headache just conjuring up some of those older ones with grids 7 and 8 columns wide where you could buy minutes of voice, data, text, etc.  Those were actually great models to drive a buyer into a store to talk to a trained sales person who would take up half your Sunday afternoon walking you through a plan just right for you.  I’m sure this was part of the design, just like car sales.  They wanted you to need that sales rep.  Only in that conversation can a true needs analysis and consultative close take place.  After that big time investment, there’s no way you were about to repeat the process with the carrier across the street.

But what has happened lately as mobile has become more in demand and more competitive?  The plans are getting really simple to understand and you are spending less time with a sales rep to enter an agreement.  It’s a different model that is right for their business today.  Customers are more knowledgeable, more interested in all-inclusive plans, and more likely to shop online for the best and most simple deal.  You likewise need to find the right balance between ease and sophistication in your licensing model, based on your product, price point and distribution needs.

Let’s try to visualize this.  To begin, we’ll define your price category.  Your product has a price point below which it isn’t possible for you to build and support it.  Let’s just use Yelp’s iconography to define these relative price points:

price points

Once you define your category, consider how you will sell your product.  If you have a product that can be sold completely online in self-serve fashion with no rep involvement you are at the lowest end of the spectrum.  If your product will require multiple meetings with high level administrators, long evaluations and complex implementations, you are at the high end.  Let’s use these symbols for sales model categories:

sales models

Take a look at this graphic which shows price categories vs. sales model categories.  All licensing models can become dots on this graph with the most complex one going near the top and the least complex one going at the bottom.  The blue area defines appropriate “complexity factor” for your licensing. Above the blue you’re getting into a mismatch of resources needed for the size of the sale.  You want your license model in the blue to stay in the pink.

Pricing Model Sweet Spots

Plot your model on the graph using the red model complexity lines to intersect with your price and sales category.  Give yourself one point for each sentence to describe discounting, plus one point for each decision a customer has to make.  One price per school or district is about the lowest level of complexity I can think of.  Since I can describe it in one sentence, it’s a one point plan.   If you then give a discount for the number of school licenses purchased by a district, it’s a two point plan, and so on.  If individual components can be grouped for bundle discounts, you add a point for each pricing option available.

Let’s take a look at some examples.  This first one for Product A is a simple supplemental product with a low marginal cost such as a SaaS practice tool:

Pricing Example 1

 

Example 1 is for a product in $ price category and accordingly wants to be a one meeting close.  They are considering two pricing models both which sound simple.  Option A is a $5/student model, with discounts for the number of students licensed.  That is a two-point model. It offers a lot of flexibility and allows for a small initial purchase, growing to a bigger adoption, but it is a tiny bit complex.  A school most likely will need to speak to a sales person to get a formal proposal for their purchasing clerk, and they will take a little time weighing the benefits of how many students to license. This one is just a little over the complexity line, but enough to impact the cost of sales for the business model.

Option B is a fixed price per campus available in 3-5 sizes based on enrollment.  That’s one pricing table making it a one-point plan.  This plan lacks flexibility, but it does address volume discounting, and it can definitely be accomplished as a one meeting close.  It’s in our acceptable complexity zone. You may need to come down from $5/student in this model, because you have to account for not all students making use of the product, 20% or so.  That sounds like a lot, but you’ll probably be collecting the same sales volume with the opportunity to increase impact. Renewals are easier too, as you don’t have to adjust their license for enrollment numbers each year.

Here’s a second example, this time for a higher price point product in category $$$ and a multi-meeting close; let’s say a curriculum tool with a catalog of courses:

Pricing Example 2

Since Product B is higher up the food chain, they can get away with more complexity in their licensing model. In fact at this price point, like a car dealer, you WANT to force interested parties to work through your sales team.  But choice breeds stress.  Having your customers pick and choose between options takes time.  It may give time for a competitor to drop off an easier-to-understand proposal.  In License Model Option A, the product can be purchased for $150 per course per seat but if you buy certain product bundles there are discounted packages.  You can say that simply, but there are in fact 6 choices the customer has to evaluate in the pricing table.

A less complex option to just charge $10k/campus for all products plus a district volume discount takes a huge number steps out for the buyer, who now doesn’t have to choose between the number of courses and which students to prioritize.  We’re down to a two-point plan, well within the complexity tolerance for this price point.  Yes, that $10k price includes a substantial discount on the individual courses and seats, but who wants to manage that license on either end?  This is quick and clean for your systems overhead as well as the length of your sales cycle, balancing out the discount.

The bottom line on licensing models is that the world is shifting to the less complex.  While there are a myriad of other factors to discuss on the subject of pricing, keep complexity as low as possible, and always in proportion to the distribution model you can afford.  Simplicity pays dividends.

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