Can Per-User Pricing be a Trap?

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Cost-effective per-user pricing structures can actually be the most costly

In a per-user pricing structure, a company must pay for each individual to have their own login and password to the system, also known as a “seat.” Often, in an attempt to save money, companies will have their employees share their login information. This can pose a significant threat to team management and accountability.

Low-cost, per-user pricing can seem like a good option in large corporates, but the expense can quickly skyrocket if say for example you are implementing software in a company with 1000+ employees at $20 per user.

There is significant overhead for the IT department of a company when implementing a per-user subscription service. IT departments are required to review every request, creating a huge amount of overhead in reviewing each person who wants to access the piece of software.

Green Rope identifies the top 5 problems a per-user pricing structure can pose:

  1. Cost prohibitive & can significantly increase your total cost of ownership
  2. Shared logins means a loss in transparency and accountability
  3. Decreases the likelihood of successful CRM adoption
  4. Can’t restrict access permissions
  5. Weakens overall business management

     

An unlimited license may seem like a lot at the beginning, but it ends up being the lower cost alternative in terms of time, effort and dollars in the long run.

How per-user pricing might affect the purchaser

Here is an Intov8 example of how a per-user subscription might be the more costly option over an unlimited license. Below is a breakdown of Intov8’s monthly users of Corvus over November:

Monthly report of November Corvus users
  • Total logins to Corvus during November – 25,080
  • Current active Corvus users during November – 10,979
  • Newly supported users as of 1st November – 241

Here, we can see how a per-user subscription to software might not be the most cost-effective solution as a purchaser.

How per-user pricing might affect the seller

Limited Growth

Per-user pricing structures can limit growth opportunities of the product throughout the organisation. With per-user pricing, your growth becomes dependent on the number of seats you can sell, and at that point, it is almost like retail.

Price Shock

If a company offers a certain number of “seats” for free, say 15, and a company wants to add 3 more, that will push them over the free limit. The price-shock going from paying zero to potentially hundreds of dollars per month is significant.

It is Easier to Churn

If your service is only used by say 5 employees in a 100-person company, it will be much easier for that company to switch services, in favour of a better-integrated alternative. This can lead to a shorter customer lifecycle and as a result, reduced revenue generation.

It De-Values your Service

A per-user pricing structure will position your service as only providing value at the individual level, rather than providing value to the whole business. Here, the customer’s perceived value of your service will be lower than the value it actually provides and as a result they will be less willing to pay for it – or adopting more of it throughout the company.

While adopting software that follows a per-user pricing structure can often seem like the better option, both for the seller and the purchaser, it is often the more costly option for both parties. In the case of the seller, it can be detrimental for growth possibilities, value of the service and adoption throughout the company. While for the purchaser, the cost of per-user pricing can very quickly increase, particularly in large companies wanting to adopt a piece of software across many employees. 

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