While your company goals may include improving student performance and providing quality services, your edtech startup still needs to turn a profit. Every startup gains funding and expects for a certain amount of income to keep their heads afloat until their product gains notoriety. However, choosing a pricing model can be tricky. And, the wrong choice can kill your chance at success in the edtech market.
How do you choose a business model that will grow your users and profit your bottom line? And, how can edtech companies entice stubborn potential clients to bite? Take note, edtech startups, because both these questions have surprisingly simple answers.
Landing a Whale
While you’ve put resources into market research, product development and curriculum expectations you may be missing a critical step. How you present your product to schools, parents, and teachers can be a major factor in its acceptance or rejection. What do we mean by this?
It’s simple. Pricing models have hurt edtech companies in various ways. The most significant flaw for pricing is lack of transparency. Companies who charge different base rates, and keep these figures hidden from potential clients, hurt the reputation of edtech. Edtech users often have no idea if they’re paying too much or getting a good deal. This lack of transparency in pricing causes everyone to feel like they’re getting ripped off.
Consequently, the advent of a pricing library in 2017, has shown districts the truth about their purchases. For some companies, this new development may be a hindrance to future success, but for those companies who provide understandable pricing models, it will prove helpful.
Meanwhile, edtech startups who are committed to providing value for their products and reliable pricing models will see an easier return on their investments. Once you understand the importance of transparency in pricing, you need to decide how to price your tools. The first step to this process is categorizing your product honestly.
Classify Your Products
When marketing your edtech innovations, it’s tempting to use buzzwords like platform and curriculum. However, misrepresenting your product won’t do your company any favors. Determine if what you’re offering users is supplemental or can be implemented to support an entire curriculum.
Ask yourself the following questions to determine your category. Does your product fulfill the standardized curriculum requirement for a subject/grade level of an entire school district or region? If yes, you are offering a curriculum solution to school districts. If no, is your product designed to teach a particular skill or subject, but not comprehensive enough to cover an entire curriculum. If yes, you can categorize this product as supplemental content or resources.
If your product doesn’t fit the first or second categories, ask yourself the following questions. Does it solve a particular need for schools or teachers in respect to instruction, administration or infrastructure? If yes, you’re offering a digital tool. If not, does your product offer a broad instructional, infrastructure or administrative platform for use with third party tools and content? If yes, your product is in the technology platform category.
Where you fall in edtech categorization determines the best business model to pursue.
Free Service Startups
If your product is either digital software and tools or supplemental content, you can choose to employ the freemium model. This standard approach among edtech entrepreneurs is to offer products for free and gain users. This strategy works for obtaining widespread use of a product. However, when the company moves to monetize their products the initial popularity doesn’t always hold. While the freemium model may help gain users, it will likely take a while to show any profitability.
Traditional Top-Down Sales
If your product is a curriculum solution or technology platform for district-wide use, the top-down model will work best. This strategy is the staple of K-12 industry sales. However, selling to the highest level of the school system takes resources and time. The educational system is bureaucratic and slow, which makes progress incremental for start-ups. Most startups will not show growth or profit quickly with these types of products. While successful top-down models may rely on huge gains, the average startup will waste resources on selling and never see enough return to make headway.
Alternative Distribution
The preferred method for digital software tools and supplementary content is the bottom-up model. For the greatest flexibility and chance at turning a profit, edtech companies need to look at out-of-the-box strategies. Targeting the end user for your product, i.e., teachers, students or parents can be a great way to gain users and monetize your investment. Distributing directly to the intended user allows companies to forgo bureaucratic red tape and operate on a much leaner budget.
Pricing User Centered Products
Products which are targeted to users and sold either freemium, with the option to upgrade, or via bottom-up distribution have to stay in a reasonable price range. Keep in mind that your product will require less legwork to market and can expect user gains via customer reviews and recommendations.
For a supplemental tool for classroom use, the best approach is to offer a generous trial period or limited-capability free version for teachers. The idea would be to demonstrate your product’s usefulness to teachers who can then request funding for the paid program. A supplemental tool should be priced under $5000 per year, to stay within the allowance of most school administrators without requiring district approval.
However, if your intended customers are parents and students, you need to drive high volume sales at low prices. Marketing to users requires keeping your price point under $100 per year and focusing on user friendliness. A trial offer or free version for teachers can help drive sales with these products. The key is to reach as many users as possible by providing your product as an app or web-based system.
Pricing Top-Down Products
If you’re offering a product which requires sales directly to the district, you will need to price accordingly. Keep in mind that selling to schools can be a long process, often taking up to 12 months to close a deal. To survive the overhead costs of such a long game, you will need to offer a product with a minimum order of at least $50k. An average price for your tool would need to run about $100k.
Since we’re talking about big money on each purchase, you will need to display a need for your product and a superiority to others offered. Selling such high priced tickets to school districts always hurting for money will require a lot of legwork, time and investment. So, even though each order will look like a sizeable amount, you will likely profit very little until you’ve built up a return client base.
Regardless of the type of edtech product your company makes, you need to consider who you’re selling to and what you’re offering. Pricing your product low will allow for extreme user growth, but may make profitability scarce. Offering a free trial is a more stable choice for gaining users. Similarly, pricing too far above your competition will make sales hard to come by. Staying competitive is important in this growing industry.
What sales model has your company used? What have been your pricing challenges and opportunities? We want to hear your feedback!
