Why are software charges so complex?

<span id="hs_cos_wrapper_name" class="hs_cos_wrapper hs_cos_wrapper_meta_field hs_cos_wrapper_type_text" style="" data-hs-cos-general-type="meta_field" data-hs-cos-type="text" >Why are software charges so complex?</span>

As a former CIO, one of the things that used to drive me nuts was a complex pricing model from a software vendor.

Why? Because it meant a lot more work just to understand what we were going to pay. Then, work every month to ensure that we were being charged correctly.

Sometimes, you felt like a detective investigating a sophisticated scam. Is maintenance included? Do I have to pay more for support? Is there a per-user charge? Are there extra charges when we hit a certain volume? Do I have to license one module to get the functionality I want from a different module? 

As consumers, we see this kind of deliberate marketing confusion every day. Airlines are notorious for this. Ok, the seat costs $350. Want to take a bag? Another $50 please. Want to choose your seat? Another $30 please. Telecommunications and entertainment companies are similar. Your base plan? Ok - but if your data usage goes over, you pay per gigabyte. You get basic channels, but if you want to watch a documentary channel, you pay more.

Deliberately obscure and confusing pricing is everywhere you look.

Here's a challenge for you. Count the number of billing lines on your next invoice from your vendor. If there is more than one, there is scope for simplification.

When we started Sentro, we decided that we were not going to be 'that kind of software vendor'  - the one who tries to confuse their customer with weird pricing models. Our pricing model would be clear and simple. We would include the things customers expect to be included in our basic price. Then, we would give our customers even more. More about that later in this article.

Let's look at some of the things you should be asking your software vendor when they quote you a price.

What to ask your software vendor before you sign up

What functionality is included? 

When vendors offer "Basic", "Pro" and "Enterprise" plans, make sure that you clearly understand the business functionality  included in each tier. If a vendor offers differently priced modules (like "policy admin" and "billing") make sure that you clearly understand which modules you need to license to receive the functionality you're expecting. Sometimes, you'll need to license a module you aren't that interested in in order to get the functionality you want.

Are upgrades included?

Some vendors will charge extra for a new software version. Check to see if your agreement entitles you to receive application updates without additional charge. While you're at it, also ask them how often they deliver application improvements.

Do you have to pay extra for a testing or learning environment?

For enterprise software, customers often want and need access to a non-production environment. This can be for different reasons. Some want an environment where they can develop and test inter-system integrations. Others want an environment that they can train and learn on. Others want an environment where they can demonstrate something to their customers and business partners. 

Ask your vendor how much they will charge you for a non-production environment, and what you are permitted to do with it.

Do you have to pay for each individual users? Or for customer access?

Some vendors will charge an additional 'per user per month' fee for each person who accesses the application. Often, some number are included in a base charge, but when you exceed that number, additional charges are payable for each user.

It is also important to know who your vendor considers a 'user' for this kind of charge. If you are offering online service to customers or businesses, is each customer account considered a 'chargeable user?'.  For high-volume applications, these charges can add up really quickly. If you're an insurance company with hundreds of thousands of customers and you want to offer them self-service via your vendor's application, these costs could be a huge and crippling surprise.

Do you have to pay to transact?

Some vendors charge on a 'per transaction' basis. A transaction might be something like a document generated or an invoice calculated. If your vendor charges you this way, make sure that you have a clear understanding of your likely transaction volumes before you start. Also make sure that you are in control of these transaction volumes yourself (and not for example your customers and partners who may also be using the application in some way).

Do you have to pay for support? What kind of support is it?

Most vendors offer some form of technical support. But it pays to check what kind of support that is. Some vendors offer you direct access to technical specialists only if you purchase some form of 'premium level support'. Many will offer online-only support options - can you speak to a human being if you need to?

It is also worth checking out if your vendor can support you with day-to-day operational questions. Many vendors offer excellent online learning tools and resources. But they may not offer you the opportunity to have your specific operational question answered.

How we do it at Sentro

Our aim is to make things clear and simple for our customers.

Our licensing cost model is based on a percentage of the Gross Written Premium (GWP) written. This gives our customers certainty about the portion of operational revenue that is allocated to their core group administration platform.

The table below summarizes what Sentro customers receive for their licensing fees, in comparison with some of our competitors.

Pricing Comparison Table

Our aim is to be straightforward to do business with. Feedback from our customer about the simplicity and clarity of our model continues to be positive. But we will never rest on our laurels - we will always listen closely to what our customers want and expect from us.

Find out how Sentro helps insurers streamline & optimise group insurance services.