What should you be paying for your email marketing program?
Part 1—What are the latest trends in pricing models?
No one sees more pricing proposals from vendors than we do at Email Connect. As part of the management of our clients’ RFPs, we ask for and compare pricing proposals from the competing vendors. I’m willing to bet that we see more pricing proposals in a year than most email marketers and their procurement teams see in a career!
So it was with some surprise recently that we looked at a pricing proposal from a certain ESP which contained only 3 categories:
- CPM: cost-per-thousand emails sent
- Services: cost for the ongoing support of the client’s business by the vendor team
- Migration: cost of moving the client from its current vendor to the new vendor
The proposal was elegant in its simplicity and transparency, and yet it was as if it appeared out of a time machine from sometime around 2007. Because since the end of the first decade of the 21st century pricing proposal from ESPs have become increasing complex, confusing, and extremely difficult to compare side-by-side. What’s behind this development?
- Frankly, a lot of ESPs don’t want to make their pricing proposal easy to compare to other ESPs. They are a “different type of platform that requires a new and different pricing model.”
- In an effort to lower the first thing brands look at when getting pricing—the CPM—many ESPs have subsidized dramatically lower rates with the addition of fees for things previously given away by the ESPs. Data storage fees and charges for the number of active records in the database are two examples of new types of pricing introduced into the mix over the last 5-10 years.
- The bean counters at the vendors like predictability. In a straight CPM model with no minimums—something that was common in the first decade—monthly revenue can swing dramatically based on send volume. Even worse in the eyes of the suits, if a brand wanted to get out of a contract early, in the old days it simply stopped sending email through that vendor. No email, no revenue!
Some vendors have even gone so far as to eliminate the CPM charge completely, offering up “all you can eat” sending packages for a flat fee, often called a platform or a subscriber fee. Other combine those charges with a CPM as well, adding to the mounting confusion of brands and their procurement teams. And at least one vendor went in the exact opposite direction and based its fees on “fully loaded” CPMs, meaning that everything under the sun (except migration) was included in the CPM cost. These were brave vendors indeed, because it went completely against the trend of lower CPMs. When you bake everything into the CPM, it’s going to look very high in comparison.
If you think it couldn’t get more confusing, you’d be wrong. Some vendors make clients buy a package of email volume at the beginning of each year, so they pay upfront for the volume they expect to use. Which can add up to a lot of money! Other vendors still follow a more traditional approach, billing clients on a monthly basis based on email volume and any other charges not charged or an annual basis. Oftentimes the monthly payments have a minimum threshold the client will be charged, even if their send falls below the level on contracted emails (remember, the suits at the vendors like predictability!).
Add all of this up, and you can see why it is so difficult for brands and procurement teams to easily evaluate pricing quotes from vendors in an RFP process. It’s our business, and we even found it getting more and more difficult to do! But, as I like to say, there’s always a CPM somewhere, even if it isn’t called out in a vendor’s quote. Because over the course of 12 months, you will end up sending a certain amount of email volume. And you will have paid your vendor a certain amount of money. Divide the amount paid by the number of emails sent, and then divide that by 1000. And you’ll have a CPM!
But long before you get to that point with a vendor, there’s the selection process. How do you determine where the vendors looking at your business compare with one another? We solved that problem for our clients by creating what we call our Common Pricing Template. Rather than have vendors submit their pricing in the format of their choice, we require that they input their figures into our template. As I wrote at the beginning, we see enough pricing proposals to have a very good handle on all of the different line items vendors may input into a pricing proposal. And we can incorporate new line items as necessary. In doing so, we can then line each vendor’s pricing next to each other and roll them up into year 1, year 2 and year 3 totals.
Part 2: How do I know if I am getting a good deal?
So now that we know a little more about how vendors pricing their platforms, and how, despite the great deal of differences in the pricing models they use, you can still compare them side-by-side, it’s time to turn to the questions of what represents a good deal today. Let’s start off with what are the main drivers of the price you will pay. Regardless of what the actual line items in a proposal are, the main drivers of price are:
- Volume of emails sent
- Number of records in the database
- Complexity of email program
As volumes and complexity increase, the need for a more sophisticated (translation = more expensive) platform goes up. Entry level email platforms—which I refer to as the “Cheap and Cheerful” category—can only take your program so far. As you move up the vendor landscape, your basic pricing is going to go up. Add to that the fact that you’re also paying for more volume, and more sophisticated toolsets, and it’s easy to understand how your costs would go up.
Pricing at the SMB level is, for all intents and purposes, 100% transparent. Vendors post them on their websites (which is one of the key criteria for the “Cheap and Cheerful” category). But once you move into the mid-market and up to the enterprise level, trying to determine what represents a good deal becomes much more difficult. Striking a deal with an ESP in these categories is a lot like buying a car. Vendors as going to charge you as much as they can, while you want to pay as little as you can.
Without having any pricing data at their fingertips, buyers are usually at the disadvantage in these negotiations. And the longer you’ve been with your current vendor, the more out-of-touch you are going to be regarding where the market is in terms of pricing. Sure, you can ask your friend at a different company, but none of the top enterprise brands are going to share what they are paying with anyone, friend or not. Truth be told, one of the reasons we get hired by brands to manage their RFPs is the fact that we do know where the market is in terms of pricing. We see more pricing proposals in a year than most email marketers see in a career. And our pricing data goes as far back as 2012.
But not everyone has the money or the desire to bring in an outside consultant, so how do you get the best deal possible on your own? Here are some tips:
- Beware whack-a-mole pricing behavior by the vendors. As I wrote earlier, they believe that’s the first-place marketers look. You need to look at all the major pricing components that are recurring on an annual basis. And if you argue that data storage pricing is too high, and the vendor comes back with a lower proposal, make sure the CPM is not now higher than before. That’s whack-a-mole pricing.
- Three-year deals are your friend. The suits in finance at the vendors are much more flexible about pricing, particularly migration costs, when they get a longer contract (and no 90 day out for convenience!). Why, because if they give you a great deal on migration, they can amortize that discount over the entire contract, making its P/L impact less than if it hit all in year 1.
- Don’t assume your new contract should be for less money than your previous contract. If you are moving because you have outgrown your current vendor, it’s likely you are going to have to pay more to get the features and functionality you need. If you are moving laterally because you have issues with your current vendor, there’s a good chance you can get a better deal, particularly if you’ve been with your current vendor for 5 years or more. Your existing vendor is always going to adjust pricing more slowly than a new vendor trying to get your business.
My last piece of advice is to never do a pricing shoot-out between 2 or more vendors. The savings you might get are far outweighed by the bad taste it will leave in the winning vendor’s mouth—you’ve just treated them like a commodity. And if you force the winner down to a point where they are not making any money, you’re not going to get the service and attention you deserve, and nor should you. Loyalty is a two-way street!
PS If you were hoping that we would be sharing some of our data on actual pricing, I’m sorry to disappoint you. But more than happy to have a chat with anyone regarding his or her current pricing and how it compares to what we see in the market.