7 MIN READ
Pricing strategies that maximize sales of software training
Early stage enterprise software companies that begin to build a customer software training function focus much of the early work on building content, finding people to deliver it, and figuring out how to set up the technology to handle registrations and virtual delivery of the training. It takes so much effort to make all of that happen that no one thinks to ask, "How should we price our training?" If people do ask, it is late in the game, and in the interest of expediency, the decision is made to make the training free because "it should be part of the service and customers expect that to be built into the subscription price."
The problem with that belief is that companies are leaving a lot of value on table. Customers are willing to pay for training. Plus, that belief underestimates the effort it takes to build and run a customer education function. A discussion about how to price training should be had in the early stages of building any training organization. In this sense, customer training pricing discussions should occur on the same level as product pricing discussions. In fact, it is common with most SaaS products that there are pricing tiers because of a number of factors, the most popular being based on the number of users or featured used.
This makes sense because not all customers have the same needs. Why should pricing training be any different?
It shouldn't. But before we dive into specific training pricing strategies, let's talk about why pricing tiers exist.
It is classic price discrimination.
What is price discrimination?
Price discrimination is a pricing strategy where "identical or largely similar goods are transacted at different prices by the same provider in different markets." In other words, pricing identical goods at different prices to different customers. The idea is that by charging different prices to different customers, you can actually increase revenues.
Let's take the example of men's suit pricing. Some men's clothing stores offer the same suit at a variety of price points: $499, $899, at $1,199, to choose three arbitrary price points to illustrate the point. Why is this done? One type of customer so infrequently buys a suit that when he does, he is probably buying a suit for a special occasion. Like many men, they are buying the suit a week before the special occasion. When these men walk into a clothing store, they find the suite they want, see the price of $1,199, and buy the suit. After all, it is a good suit and that is was good suits cost. Furthermore, the special event is next week, so this man does not have the time or interest to shop around.
Another type of men's suit buyer is price conscious and is not bound by time. This person can shop around and wait for sales. This customer would never think of buying a suit at $1,199 when he knows a sale will come along. When the price of that suit reaches $499 during the mid-week sale, he buys the suit.
In this example the clothing store made two sales using two prices. Had the store not used both prices, it may have only made one sale.
Price discrimination as a key strategy
Enterprise software training leaders can leverage this example when thinking about how to price training courses. There are price conscious customers and customers that are not very concerned about price. Some customers are bound by an urgent deadline and others are not. Some customers have large budgets and a culture of investing in training. Other customers have no training budgets and only buy training to appease rebellious employees.
There is a different price point for each of these customers.
The key is to find those price points. The good news is that it is easier than you think. The place to start is to set a different base price according to each training product type you have.
To do this, let's refer to a specific part of the definition of price discrimination that we are offering "identical or largely similar goods" at different prices to different customers. Assume that you have a training course targeted at administrators in which an administrator needs to learn to set up, configure, and maintain your product to the satisfaction of and particular needs of your customer. For purposes of this example, the course will be called Administration Fundamentals.
You could offer Administration Fundamentals in a variety of formats. You could offer it as self-paced videos or eLearning. It could be offered with a live instructor via a virtual classroom technology or in person. It could be offered as a public or a private session. You could also offer a service that customizes Administration Fundamentals to the particular customer configuration of your product. Even though the delivery method is different, the content of each of these courses is, let's face it, "largely similar."
Here is how we could implement a price discrimination strategy... and bring in more customers, thus increasing revenues.
How to price your training
Think of each of your training types this way:
eLearning is self-paced, light-weight content that helps people with basic functionality. Although eLearning takes a high-level of effort to develop, it costs nearly nothing to deliver. So the strategy here is to get as many people to take these as possible and therefore should be priced accordingly. eLearning should be inexpensive. By inexpensive, I mean it should be priced anywhere from free (part of just being a customer) to less than $100 per course, depending on length and depth of each course.
Public, virtual, instructor-led
This method of training is nearly as scalable as self-paced eLearning in the sense that conducting training on virtual classroom technology can handle large numbers of students. The main difference is that students get the benefit of a live instructor. Public, virtual instructor-led training should be priced higher than self-paced eLearning, in the range of $99 to $700 per one to four hours of training, depending on length and depth of the course.
Public, live in-person
Public, live training has the added constraints of limited room sizes and travel. However, students get a more personal and intimate experience with a knowledgeable (sometimes celebrity) instructor. Pricing for public, live training should be in the range of $500 to $1500 per day.
Private, virtual instructor-led
Another scalable type of live training is private, virtual instructor-led training. This is a method for using virtual classroom technology to teach a course only to a single customer (team at a customer). Since it is a private session, it should be priced in the range of $1,000 to $3,000 per half day session. You can choose to allow the customer to send as many people as they want or set a limit of attendees to a number comparable to a limit in a live, classroom session. Anywhere from 12-20 people, for example. Customer with large teams might be annoyed with this strategy, but you could argue that the limit is set to keep student/instructor interaction at a maximum.
Private, onsite training should be priced at $5,000 to $8,000 per day of training, plus travel expenses. Being onsite adds a personal, high touch that has a lot of value.
An former (and one of my favorite) boss of mine used to say, in describing how everything thinks they are special, "Everyone thinks they are a rocket scientist." It is similar with software customers. Many customers think they are special. Their industry is different and far more complex than other customers. Their particular implementation of your product is uniquely customized. Therefore, they need custom training. In fact, they say, their experience has been that whenever they bring in training, and it is not customized, people rebel. In other words, everyone wants custom training, but no one is willing to pay for it. Custom training is hard work and takes a lot of effort. You should charge accordingly. For the delivery of that training, you should charge at least the same price as your private, onsite training. You should also charge an hourly rate for developing the custom content. The rate should be $150 to $300 per hour. And you should use an "effort model" that says it takes anywhere from 25 to 50 hours of content development work to produce one hour of content. In other words, if you are developing a one day (8 hours) custom training course, charge $200 per hour, and model your effort at 25 to 1, you would charge $40,000. These seem like unrealistic numbers, but they are not. If you don't believe me, try this. Ask your training developer to create an 8 hour course, log time, and see how long it takes. If the training is any good, it will not take less than 25 hours. It will likely be higher.
Another way to put it: You have a choice among good, fast, and cheap. Pick two.
Pricing strategies that create urgency, VIP status, and volume purchasing
Now that you have an idea of how to price your training courses, the next thing to do is actually get customers to purchase it. There are several ways to do this, and I will cover just three ways for now. Each of these approaches is used in an different way and meant to achieve a different result.
Early bird pricing creates a sense of urgency
Early bird pricing is meant to create a sense of urgency. Early bird pricing sets a lower price for an event with a deadline. After the deadline is reached, the price automatically goes up. If you have a $500 training course for sale on your website and set price of $250 of someone registers up to 3 weeks before an event date, you can get price conscious customers buying it before the deadline. Your customers benefit from the discount and you benefit from a higher certainty of revenues and that a class will run. Early bird pricing works.
Coupon codes create a VIP status
By using coupon codes that offer various discounts, you can arm your customer facing teams to give those out to customers based on their interactions. Sales people can use coupon codes with high probability prospects to help speed up the sales cycle and offer some value to someone who wants to test drive your product or experience your training. Support teams can use coupon codes to help customers learn new features (side benefit of needing to call support less often). These are just two examples, but each are indirectly designed to create some VIP status by offering an easy and inexpensive way to get in on a high value training event.
Training credits encourage volume purchasing
Training credits can work well for large enterprise customers that know they will need training, but do not know exactly when and for whom. By selling training credits with discount tiers, it can drive higher training sales volumes because you can tier pricing that allows for higher discounts for purchasing more training credits.
Training has value to customers, most are willing to pay for it, and training takes a high level of effort to develop, deliver, and maintain. So it is imperative that you get your training pricing right. When it comes to setting actual prices for your training courses, use the ranges above and experiment. One strategy is to set prices high and make liberal use of early bird pricing and coupon codes. See if you can drive volume that way. The more volume you can drive, the more you can test, learn, and tweak.