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Customer Training Pricing and Packaging: What’s the Best Strategy?

What customer training pricing and packaging strategies work best? Independent learning solutions analyst John Leh explains how to market customer education

If you follow my LMS trends updates, you know that customer training is where the action is. By all indications, this trend is not just a passing fad. Here’s why:

  • When you buy a product or service, the faster you learn how it helps you achieve your goals, the more successful your customer experience will be.
  • As a successful customer, you’re likely to buy more and encourage others to do the same.

This means customer education is more than just a nice idea. It’s also a powerful business strategy that fuels a continuous cycle of revenue and profit. But an effective approach requires thoughtful pricing and packaging. So let’s look closer at the pros and cons of some popular ways to sell customer training content…

Customer Training: What Price Is Right?

Since learning is such a critical aspect of the customer experience, it begs the question – should you charge customers for educational content? If you educate new customers at no extra charge, will the long-term benefits outweigh any near-term revenue streams you could’ve captured from selling that content outright? What pricing scheme produces the best overall results?

Every organization will answer these questions differently. It depends on your business model, product positioning, competitive landscape and customer base. It’s also useful to consider relevant industry standards and practices. First, let’s compare free versus fee-based pricing.

Free Content: Pros and Cons

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Truthfully, there is no free lunch. Even if you offer customer training upfront at no additional charge, the cost of content development, delivery and administration must be included somewhere in the price of your product or service. Eventually, buyers will pay. But whether they pay separately is a packaging question that should be driven by your marketing strategy.

Our research reveals multiple reasons why organizations choose not to charge new customers separately for training:

  • To remove one of several roadblocks on the way to product adoption. Because adoption is a key factor in customer retention and lifetime value, ensuring that more customers are successful more swiftly can lead to stronger overall revenues and long-term profitability.
  • To differentiate their brand from competitors and drive more upfront sales.
  • To “pad” a bundle of core products when companies see that educated customers tend to buy additional items over time, through up-selling or cross-selling.

Fee-Based Content: Pros and Cons

Given the potential business benefits of free content strategies, why would anyone charge customers upfront for training? Well, if you can generate revenue streams from training content while simultaneously expanding your overall business revenues and profitability, isn’t that a better choice? Here are several ways fee-based methods work:

  • In some industries, charging for customer training is a well-established model. Since customers expect to pay for educational content, there is no advantage to changing the status quo.
  • With complex products, it’s important to offer sophisticated educational content – including certifications. Typically, customers who purchase complex products want to gain skill, competence and expertise as quickly as possible. These buyers are inclined to invest in training that shortens their learning curve.
  • Free content can be an excellent introduction for new customers, but paid certifications can add value to a professional resume. For example, when developers obtain IT certification from Amazon, Cisco, Oracle or Microsoft, these credentials qualify them to earn more for their expertise. This is a win-win. It monetizes vendor relationships with developers while empowering developers to monetize relationships with their customers.

Best of Both Worlds? The Freemium

Over the past decade, the rise of cloud computing, software-as-a-service (SaaS) and subscription business models have popularized a strategy known as the “freemium.”

Another way to describe this is the “Trojan Horse” approach. Companies bundle free training with core products to demonstrate the content’s value. This initial exposure is intended to open the door to incremental paid training up-sells.

A freemium strategy differs from purely free content because it’s intentionally designed to drive conversions to fee-based relationships. Software companies offer freemiums in multiple flavors:

1) Land and Expand

This business-to-business technique focuses on attracting a legion of individual customers at a basic free level, one user at a time. When the total number of customers reaches “critical mass,” it often makes sense to invest in a premium volume based relationship. Numerous enterprise applications have succeeded with this kind of strategy, including Slack, MailChimp and Dropbox.

2) Alternative Product Strategy

The goal is to leverage a high-value free product to get a foot in the door, and eventually cross-sell an entirely different premium product. HubSpot is a good example. The company offers a “free forever” CRM, hoping to attract interest in its premium-priced marketing automation platform.

3) Network Effect

Widespread digital connectivity makes it possible for platforms to leverage users and their connections for content co-creation, learning and knowledge sharing at scale. Successful examples include Twitter, YouTubeTripAdvisor and Quora.

4) Free Tool

Who doesn’t appreciate a handy online calculator, assessment or decision support tool that resolves specific issues you regularly face on the job? Think of lightweight apps or browser extensions like SEO tools from Google or Moz. That’s the logic behind free functional utilities from brands that want to remain top-of-mind while aiming for a larger share of your business.

5) Ecosystem

This “marketplace” model depends on revenue sharing from a broad community of third-party developers or affiliates that support a central platform. Successful examples include Google Play, iTunes and Salesforce AppExchange. Also there are many examples in the commercial training space, including Udemy, Skillshare, Teachable and Pluralsight.

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Although freemium models have become popular in recent years, success can be elusive. Conversion rates are typically less than 10%. Without a massive addressable market, it’s difficult to reach critical mass. Furthermore, if a product isn’t truly self-service, it may be too complex for a freemium model.

Picking Your Price: How Much to Charge for Training

Pricing customer education can be tricky. There is no universal equation, but it helps to frame the problem strategically. Your best price depends on two critical factors: your business goals and your customers’ perceived value of the learning experience.

Can this content stand on its own as a profit center, or will it be more successful if it is positioned as an enabler of your product strategy?

For customer education profit centers, the primary selling objective is to achieve profitable recurring revenue streams. Price points should reflect the cost of the core product, the perceived value of educational content, the level of expected demand and competitive pricing pressures. More complex products naturally command a higher price for related education.

For example, a software company charging $1,000/user each year for an individual product license should expect to charge 10% or less for training. Alternatively, a medical device manufacturer selling a diagnostic system for hundreds of thousands of dollars could easily charge thousands or tens of thousands of dollars per student.

For training designed to drive product sales, you’ll want to consider customer mindset very carefully. Do they expect training to be free or fee-based? How confident are you about this assumption? While you may not want training costs to inhibit product adoption, it’s equally important not to devalue customer education at the outset.

Before you commit, conduct informal or formal research. Ask your best customers for feedback about your content value and various pricing/packaging scenarios.

Testing: Tips to Evaluate Pricing

All of the free and fee-based pricing strategies we’ve outlined are measurable. This means you can test their effectiveness, an essential step both before and after a product launch.

Although pricing models themselves may be challenging to develop, the measurement process may be easier than you think. The first step is perhaps the most difficult: You must clarify and operationalize your business goals.

For example, say your training goal is to increase the adoption rate among new customers. You’ll want to determine the appropriate metric, such as your customer satisfaction score (CSAT), net promoter score (NPS) or customer renewal rate. This will help you establish reasonable benchmarks.

Next, track and analyze relevant data from customers who engaged with each training package you provide. Then compare these scores with customers who didn’t use the training. After several reporting cycles, it should become clear which pricing approach generates optimal business results.

But remember that performance measurement never really ends. Successful learning organizations manage testing as a process. They continuously gather relevant, standardized intelligence and apply it to drive ongoing improvement.

How to Package Customer Training: Digital Business Examples

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When developing content of any type, most of the costs occur up-front. The incremental cost of selling content is nearly zero. The investment required to design, build and deploy customer training is identical, regardless of whether you sell it to one buyer or a thousand. In other words, the faster you sell an individual piece of content to multiple buyers, the faster your profits will accumulate.

Now that we’ve considered various pricing models, let’s look at the most popular ways you can package training to accommodate a variety of customer preferences:

1) A la Carte

Pricing courses/content individually and charging for them upfront is the most common way to sell training, books and nearly every other product. The fee may cover a live training event or access to specific packaged online content for a predetermined timeframe. Pricing is typically based on quality, length and perceived value.

2) Bundles

Bundles are collections of individual courses/content sold as a single unit – often for less than the total cost of the individual components. These collections can feature any number of courses, but don’t necessarily involve a sequence or a clearly defined learning path. Access is typically granted for a specific time period. One creative training bundle comes from the HR Certification Institute (HRCI), which lets HR professionals build their own custom training bundle to save money on exam preparation.

3) Training Plans

Training plans, learning paths, customer journeys and curricula are different terms for the same concept. They are designed to help learners move through multiple pieces of content in a logical, pre-defined sequence. Prerequisites and timed content availability are typically specified. Upon successful completion of a training plan, learners often receive a formal certification or designation.

One of the most visible and successful examples of learning paths is the Salesforce Trailhead online training program. Participants can pursue a series of challenges and projects to earn points and badges while they learn how to use the product in a hands-on, self-paced environment.

4) Subscriptions

Subscription models provide access to educational content for a predetermined time interval. Typically, customers pay for access on a monthly or annual basis. (Annual plans often sweeten the deal with a one or two-month discount.) Subscriptions can apply to a single course, a series of courses, a bundle, a training plan, a catalog or an entire library.

Some providers offer access to all content for a single flat fee. Success with this kind of business model depends on selling a massive volume of relatively low-cost subscriptions.

Alternatively, some organizations offer subscriptions for select premium content, such as topic-specific bundles or training plans. This multi-tiered approach helps maximize incremental sales among multiple customer segments, each with different interests and price sensitivity.

Subscriptions and other packaging models are sometimes augmented with free and freemium concepts we outlined previously. A great example of this is Lynda.com (now LinkedIn Learning).  Courses are sold on a monthly or annual “all-you-can-eat” flat-fee subscription basis, but they are also included for free with every LinkedIn Premium membership.

Conclusion

As you can see, in today’s digital business environment, there are countless ways to package, price and manage customer training initiatives. Established companies often charge for training through a customer education profit center. Startups tend to focus on broader objectives and forego immediate training revenues to grow their customer base more quickly.

There is no single “correct” solution. However, there are universal principles worth keeping in mind. Start by reconciling your revenue priorities with the need to drive customer success. And remember that you can modify your scheme as your business expands and evolves.

If pricing and packaging options seem overwhelming, let your business strategy and customer input be your guide. Then verify your assumptions by testing and tuning early and often. With relevant data, you’ll have a reliable foundation as you build a virtuous cycle of revenue and profit.

Thanks for reading!

 


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The Ultimate Guide to Customer Training

If you enjoyed this article, you’ll want to download The Ultimate Guide to Customer Training from Thought Industries.

This free resource brings together advice from leading experts about how you can design, develop and deliver customer training that makes a measurable business impact.

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John Leh
About John Leh (161 Articles)
John Leh is CEO and Lead Analyst at Talented Learning, LLC. Named among the “Top 20 Global Elearning Movers and Shakers” in 2018 and 2017, John is a fiercely independent LMS selection consultant, blogger and podcaster who helps organizations develop and implement learning technology strategies – primarily for extended enterprise applications. His advice is based on more than 20 years of industry experience, serving as a trusted LMS selection and sales adviser to more than 100 learning organizations with a total technology spend of more than $65 million. You can connect with John on Twitter at @JohnLeh or on LinkedIn.

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