Ask a CTO: Why Usage-Based Pricing Wins

Jun 2, 2021 9:00:00 AM

Great questions arise whenever we host webinars, give one-on-one demos, and even as we onboard new customers. When these questions require technical answers, I like to go straight to our in-house expert, co-founder and CTO Bracken Fields

Last week I sat down for a Q&A with Bracken to hear first-hand what he had to say about the hotly discussed topic of contact center software pricing. In this next installment of Ask a CTO, Bracken and I discuss how pricing has evolved over time -- from named user to concurrent user to usage-based -- and which pricing model best serves the way companies' contact centers operate todayWe spoke at length about this topic, both on-air and off. See what he had to say. 

Analysts and experts have been talking a lot about pricing lately, specifically usage-based pricing. Could you explain how software has been priced historically in the contact center industry? 

Sure. Historically, there has been essentially one real way of pricing this product, which is named user pricing. For example, if you have 100 agents in your contact center, at a monthly license fee of $140/user month, you would calculate the total cost by taking 100 agents x $140 x 12 months. You would pay $168,000 a year for your contact center software. That’s great for the software provider but oftentimes very tight for a company.

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If it sounds a little inflexible, that's because it is, especially when it comes to employing part-time agents and navigating seasonal spikes. Many contact centers increase their number of agents when inquiries start rising. Traffic spikes could happen for various reasons -- perhaps during certain times of day, in response to external events (think power outage or natural disaster or... pandemic), seasonally for the holidays, or otherwise. With named user pricing, you must have a license for every agent at that high watermark year-round -- even if they don't use it! Ouch.

DMG Consulting says, “vendors who sell concurrent licenses typically charge more per seat than those that offer named licenses.” Can you explain the deal with concurrent pricing?

Over the years, there have been convoluted ways of taking the named user pricing model and fiddling with it, resulting in mostly business process outsourcers (BPOs) fighting for concurrent pricing. Think of concurrent pricing this way: There's a phone on a desk that one person sits at for eight hours. When they leave, the phone is still there so you have another person sit at that desk for another eight hours. Then the next shift agent takes over, and so on. In this example, you have three people using a phone for the price of one, but things quickly spiral out of control. The CCaaS provider ends up trying to get back to the $140/named user pricing via "fuzzy" math, and it's difficult for all involved. Concurrent pricing is really just a way to try to maintain the status quo while also maintaining cost. If you want a deeper dive into the pricing discussion, industry analyst Dave Michels has written some excellent articles on this topic, including a recent blog on NoJitter.

So what is per-minute/usage-based pricing then? And how did it come about?

I think the first company to actually deploy usage-based pricing was Twilio. Amazon Connect also does it now as well. Usage-based pricing more accurately follows the cost curve of contact center software in a cloud-native environment, which is totally elastic. So, if a software company is providing service to one user, the cost is obviously going to be higher if they're making a call than if they're not making a call. Those cost arcs can easily be tracked from the business side, along with the revenue generated on those cost arcs. It's probably been the fairest way to price contact center software because brands are paying for every minute that they’re using it, but it's incredibly unpredictable. Just because it's fair doesn't mean it's right, right? 

How does usage-based pricing help organizations better predict their contact center expenses?

It doesn’t. It's totally unpredictable... you can't know from one day to the next what it will cost. Most organizations typically have some sense of their seasonality needs throughout the year, so there is a slight benefit there. Usage-based pricing has been the fairest pricing model available -- until we launched Edify -- because brands only pay for the literal minutes their agents are logged in. Consider the fact that a logged-in agent won't always be contributing anything of value workwise, aside from simply making themselves available, so per-minute pricing really forces managers to keep an extremely tight reign on their agents. If one agent is logged in for 512 minutes one day and 518 the other, you're charged for those exact minutes. The chart is really jagged, though, so finance people have to know what the maximum budget for this cost per day is. You could be in for a massive surprise every time you look at your bill when dealing with per-minute pricing.

How is Edify’s new pricing model different from anything anyone else is offering?

Right after we started Edify, Cameron (Weeks, CEO) and I were sitting in a friend's office talking about his contact center. Pricing kept coming up. He said, "You know, I have agents that only log in four or five days a month, and that's just really un-fun to pay full-price licensing fees for that. Sure, I've got the budget and whatever. I guess it's the cost of doing business, right?" 

Actually, no. It doesn’t have to be. Then Cameron asked, "What about per minute or per hour billing?” Our friend responded, "Yeah, but then you literally just never, ever know what you're going to pay. There's no way to predict it, so that's not great either." 

I sat there thinking, "What if we changed the denominator?” Instead of per user per month, what about per user per day? The reason behind this is because most of the time when someone logs in, they're likely going to be logged in for multiple hours. And leaders have a general idea of how many people they’re going to have working per day/per week. So if you charge by the day (versus the month or the minute) for software, you can really help contact centers predict software costs with a high degree of accuracy while also cutting those costs.

I think we can agree that the past year has been tumultuous, to say the least. Businesses have shrunk and grown and back again. Why is per-user-per-day software pricing, in your opinion, the only way forward? 

For starters, it helps us give prospective customers an understanding of big picture software costs while explaining why paying for monthly licenses they don’t use all the time doesn't make sense and isn't necessary anymore. Explaining to companies that additional agents or other staff can jump into the contact center to log in and help during really busy times as needed is mindblowing for them. They are accustomed to having to call their vendor and request more licenses. With Edify, they can scale up and down as often and quickly as their business demands with just a click.

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Usage-based software pricing is the only way forward. I am obviously biased because I invented our pricing model, but I’ll own that. It works well for customers and they quickly understand scenarios like: "I've got three buckets of agents. 50% of my agents log in 20 times a month, which is two more days than the average contact center user. And then I've got this other bucket that's 30% of my workforce that logs in between 10 and 15 days a month. And then I've got a 20% bucket of agents that only log in two or three days a month. So if I have to buy a license for all of them every day out of the month, I’m overpaying a LOT for part-time access.”

Guaranteed, the three-day-a-month agents will be the best part-time agents you have, too. You don't want the cost to determine whether or not you can keep them! They're probably people that are maybe a little more seasoned, perhaps who work in training resources, and can step in to help when there's a lot of call volume.

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Recently we talked about how companies can leverage a gig economy by going remote. How does usage-based pricing support that?

More and more companies are choosing to continue operating remotely. Even more companies and people have had to pivot the way they operate or do their jobs -- notably, the growing gig economy. Think Uber, Doordash, Shipt, you name it. Companies could take some of those skilled people who love remote work, who like being in the gig economy, and leverage them as skilled work-from-home agents. Usage-based pricing 100% supports and facilitates this and is really the only affordable way for businesses to go this route. 

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If you can get the training materials correct, you can easily educate and train gig contact center agents. This benefits both your customers and your agents. Let’s take me, for example. I really love The North Face and I know quite a bit about their products. I could probably help someone who is deciding whether or not to buy a quarter zip and would love to offer my opinion on the product. But I wouldn’t know how to facilitate a product return... I have no idea how that works. However, if the company had the right training materials to teach their biggest brand advocates on how to do an RMA (return merchandise authorization) -- built-in to the agent software -- you could easily have passionate people gig into the contact center.

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This makes me think of stay-at-home parents who want to be in the workforce in some capacity and earn income but don’t have the ability to leave their house. Do you see that as a use case?

It’s a perfect use case. I could see a lot of parents wanting to act as part-time agents for a brand they like and are passionate about. They have a personal connection to certain brands, understand the products, probably even use the products regularly, and can speak with first-hand experience. It’s better than reading anonymous product reviews online! I believe there's a huge opportunity for companies to leverage their enthusiasts as amazing agents who can deliver a truly personalized, enthusiastic experience. Better yet, it’s pretty simple to accomplish!

On the Edify platform, anybody can log in and start taking calls; we even deliver the training, too. Our users have access to a great built-in knowledge base, as well as a simple interface that’s easy to understand, navigate, and is super intuitive overall to use. 

In training, for example, if someone comes through an IVR about a product return, we quickly surface just-in-time steps to show the agent how to handle the inquiry. It makes all the difference in the world.

A lot of people have shown interest in Edify’s per-user-per-day pricing model. What would you say regarding why this is so important for companies today and the big benefit it gives them?

I think the flexible nature of our all-in pricing model is the biggest benefit. When I was a 15-year-old kid, my first job was selling ice cream at a little ice cream shop in Lapel, Indiana. I did it for four years and loved it. But what I didn't like was the economics of sprinkles. Buying a jug of sprinkles is expensive, especially when you're buying enough for an entire ice cream shop. To keep the top-line revenue of an ice cream cone as high as possible, you can build the cost of sprinkles into every ice cream cone -- knowing that some people don't want them -- which is unfair to your non-sprinkle customers. The other option is to charge for sprinkles individually to those who want them. It seems simple enough, but when a kid came in with exactly $1.50 for a plain cone yet wanted the $0.15 sprinkles too, I absolutely hated telling that little kid, “sorry the sprinkles cost extra.” I got to a point where I would just put the damn sprinkles on there for free.

So when we started building software, we didn’t want a cost for sprinkles per se, right? We solved that by building in the sprinkles! There's no reason not to give them to our customers. For example, omnichannel functionality is our version of sprinkles. It’s built-in, and we’re giving it to you! The same goes for machine learning chatbots. Text messaging is incredibly important, web chat, video… the list goes on. These tools are all huge magnifiers to customer service interactions, and we want all our users to benefit from them without hidden fees or extra costs.

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These are all things that customers and employees expect by now, right?

They are. We expect all of this, and it's sort of a standard at this point. If you've already spent the development time to create text messaging or video and will continue iterating them for other clients, there's no reason not to empower all companies and their agents with those sprinkles. At $7 a day, we can keep building more cool products and keep giving them to all of our clients.

It’s pretty unbeatable.

Kendal Rodgers

Written by Kendal Rodgers

Kendal is the Marketing Manager at Edify and has been writing and curating content most of her professional career. She’s passionate about working with start-ups and sharing life experiences through storytelling. Kendal earned her B.S. in Marketing and International Studies from the IU Kelley School of Business.