6 MIN READ
How to Price Customer Education When Your Customers Expect It To Be Free
The most recent Customer Education University course, How to Build and Run a Strategic Customer Education Operation, is coming to an end, and students are finishing the final assessment and collecting their certificates of completion. Congratulations to all who completed the work. Among the many topics covered in the course, one of the most popular, judging on how much time we spent on it, was how to price training.
We didn't just talk about what price to charge, but also how to start charging for training to customers who are used to getting it for free.
Pricing is a touchy subject for a variety of reasons. Most of the software companies I speak to fall into one of two pricing camps. They either believe in charging for training as a primary business approach (open source software companies are good at this), or they believe training should be part of the service in the software subscription. The former believes in earning revenue from training and the latter believes training should be offered with a primary goal of helping customers adopt the product and, of course, renew.
Here is an example of one of those camps.
We ran a webinar on Tuesday, December 5 called Software Adoption Crash Course for Customer Education Leaders with guest Maria Manning-Chapman, vice president of education services research at TSIA. During the webinar, a participant asked this question:
"Should training services be an added cost for customers, or should it be included as a 'customer success' package? The concern is that added training costs would stand in the way of adoption."
The answer to the first part is, as you can imagine, "it depends." Maria Manning-Chapman would say that you should offer both free and paid training. As for the second part of the statement, I urge you to dispel the notion that simply charging training will somehow prevent adoption. The premise is that pricing training will somehow prevent customers from doing the training, thus reducing product adoption. I could argue (and have) that free training prevents people from taking it because if something is free, customers can too easily say, "I'll do that tomorrow" and then never do it. If they pay for training, they will go because they don't want to waste it.
But this discussion is why we should be starting off charging for training and set customer expectation that if they want to learn your product well and learn how to do their jobs better, using your product, they should purchase your training offerings because they are that good.
If you are in a stage of launching new training offerings and are deciding on what to charge for it, consider listening to this podcast on pricing.
When pricing, start high
One of the best lessons you will hear about pricing technology products is from a recent a16z Podcast with Martin Casado, general partner, Mark Cranney, head of the go to market practice and executive briefing center, and Scott Kupor, managing partner, Andreseen Horowitz all. Early in the podcast a story is told about a technical found explaining to Ben Horowitz, who was on his board at the time, that he wanted to price the product low at first, to gain a lot of adoption, then raise the price over time.
Ben Horowitz said to this founder, "I want you to be very careful because no single decision will impact the value of your company more than the decision you are about to make on pricing."
What's wrong with that, you ask?
The discussion on the podcast goes on to talk about the difficulty in pricing. When it comes to startups in a pre-chasm stage, no one knows how to value your product, so you have to establish the value up front. If you don't, you are devaluing it right from the start. One of the main points of the podcast was to start high with price and then let the sales team shake it out during the sales cycle.
So if you are in an early stage and in a position to set your pricing, take the advice of this panel of customer education experts, the start your pricing at a high level.
But what if we started with free?
I know what you are thinking.
"What if we already give away our training, but now I want to start charging customers for it. Am I going to upset my customers?"
This is a challenge, and we don't want to just spring expensive training on customers who are used to just having access to training for free. Fortunately, there are many ways we can begin charging for training that will not upset customer.
Let's go through four tactics.
Add line item to software subscription for training (carve out revenue later)
One way to start charging for training with a minimal impact on customers is to include training as part of the product subscription, then ask your finance team to "carve out" a portion of the product subscription revenue and apply that revenue to your training "line of business." Sounds complicated, I know. But it is not complicated for your finance team because they know how to do this, and it is low impact on customers because you can structure your product pricing so it looks to customers like training is part of the deal, not an extra cost. In other words, in your pricing/feature matrix, you can add training to the feature list for all or some of your product tiers.
Another reason to take this approach is that you will get used to earning revenue for your company, even though you are not directly selling training. This is what will happen with this approach (accounting methods may vary). As customers complete training, your finance team will recognize revenue and apply it to your training line of business. You will receive monthly reports showing the revenue your team is earning, and the more customers who complete training, the more revenue will be applied to training.
This will excite you and motivate you to get more customers to complete training and even to create more training for customers to complete.
To take this approach, you will need to talk to your finance team, sales team, product team, chief revenue officer or chief operating officer and ask if they want to both include training in the pricing/feature matrix and recognize revenue for training in this way.
You should have this discussion.
Keep free option, add pay option
Another way to introduce paid training to your customers is to launch a new course(s) and start charging for the new course, but leave the existing courses for free. This approach allows you to say to customers that yes, this course costs $799, and these other courses will remain free. This can be done in two ways. First you could create a new course on a new topic (or a more advanced version on an existing topic), and then starting charging for the new course, leaving existing courses free. Another approach is to take your main foundation course, create a new version of it in another format (from live to self-paced, for example). Now you have two courses. You would then make the self-paced version free and the live version at a reasonable price.
The point is to build your library over time so that you have free education offerings and paid education offerings.
Offer paid training to new customers only. Grandfather existing customers for a year
If you decide to go all in on selling training and not offer any free option, you could start selling training to new customers only. At the same time, you will begin communicating to existing customers that you have updated your training offerings and will begin charging for it. But you give customers one year to continue to get it for free. This eases the blow of having to pay for training AND creates some urgency for existing customers who have ignored training to now go take it before they have to pay.
Create subscription offering and add to all deals
A fourth approach to beginning to charge for training builds on the previous ideas. As you build your catalog, you will make all training available and then start selling a subscription to your training catalog. Take the first tactic in which you simply add training to the pricing/feature matrix. In that scenario, you don't charge extra for training. You allocate a certain amount of the product revenue to training. In this scenario, you add a line item in the purchasing process (whether on the website or in proposals sent to prospects by your sales team). This line item is called "Training Subscription," and has an annual or monthly price. Customers see this line item and can make decisions on whether they want to buy it. Once they do, they get access to the catalog and can take training whenever they want.
There are many ways to price training. And you should strongly consider being a revenue producer at your company. The last thing you want to be is overhead.
[Webinar Recording] Software Adoption Crash Course for Customer Education Leaders
Maria Manning-Chapman, vice president of education services research at TSIA, was our guest on a webinar during which she talked about why customer education is ideal for driving adoption and how to do it. Manning-Chapman talked about the research she has been conducting, and how you can leverage your customer education progams to drive customer adoption. We also talked a bit about pricing and valuing education, and if you liked this blog, you will like the webinar. We recorded it so you can watch it anytime.