Written by: Bill Cushard
Early-stage enterprise software companies that begin to build a customer 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 the 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 features 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.
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, and $1,199. 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. When these men walk into a clothing store, they find the suit they want, see the price of $1,199, and buy the suit. After all, it is a good suit and it was worth the cost. Furthermore, the special event is next week, so there is not enough time or interest to shop around.
The next type of 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 the suit he wants goes down to $499 during the mid-week sale, he makes the purchase.
In this example, the clothing store made two sales using two different prices. If the store had not used both pricing strategies, it may have only made one sale.
Enterprise software training leaders can leverage this example when thinking about how to price training courses. There are two types of customers: those who care about the price and those who barely look twice at the tag. 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 and the good news is that it is way easier to figure out than you may think. The place to start is to set a different base price according to each training product type that you offer.
To do this, let's refer to a specific part of the definition of price discrimination where 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 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 revenue.
Each type of training can be priced differently based on how much value it will provide attendees. Here are a few examples:
eLearning is self-paced, lightweight content that will help attendees with basic functionality. Although eLearning takes a high level of effort to develop, it costs nearly nothing to deliver. The strategy here is to get as many people to attend as possible and therefore should be priced accordingly. eLearning should be inexpensive or free (part of just being a customer) depending on the length and depth of each course.
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 depending on the length and depth of each course.
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.
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. 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. Customers with large teams might not be the happiest with this strategy, but you could argue that the limit is set to keep student/instructor interaction at a maximum.
Private, on-site training should be priced based on your expenses (including travel charges). Being on-site adds a personal touch that has a lot of value.
Everyone wants custom training, but not everyone 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, on-site training.
Now that you have an idea of how to price your training courses, the next thing to do is actually get customers to purchase them. There are several ways to do this. Each of these three approaches is used in a different way and is meant to achieve a different result.
Early bird pricing sets a lower price for an event with a deadline and creates a sense of urgency. After the deadline is reached, the price automatically goes up. If you have a $500 training course for sale on your website and a set price of $250, 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.
You can arm your customer-facing teams to give out coupon codes to customers based on their interactions. Salespeople can use coupon codes with high-probability prospects to help speed up the sales cycle and offer value to someone who wants to test drive your product or experience your training. Support teams can also use coupon codes to help customers learn new features (a side benefit of needing to call support less often). These are just two examples, but each is indirectly designed to create VIP statuses by offering an easy and inexpensive way to get in on a high-value training event.
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 tier pricing 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.
Learn more here.
Originally published on July 22, 2015