Education is undergoing a phenomenal change over the past five years. What began as a foray into cloud-based learning tools has today expanded into other newer areas of technology like artificial intelligence and virtual reality. Rum Tan recently wrote about the use of AI assistants to help teachers tackle the challenges with teaching kids with vastly different pace of learning.

Regardless of the kind of technology entrepreneurs introduce to traditional pedagogy, a fundamental problem these startups face is the pricing model. This is because of the two-tiered structure of the customer. EdTech products are sold primarily to schools and colleges who then pass on the cost of these products to the students in the form of fee hikes. In other cases, schools rely on public funding for their expenses and there is hence a lot of bureaucratic red tape to cut through to make a purchase.

Another challenge that startups face is that there is no ‘one-size-fits-all’ pricing. Each customer (school or college in this case) is unique in the number of students they have, the product features they need and their bandwidth or storage requirements. A flat pricing structure may not be feasible in this case.

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Finally, despite the fact that schools and universities are ‘business’ customers, they are still extremely sensitive to price. If you are a startup who is yet to establish a brand, it may be difficult to convince your customer about your high price without demonstrating credibility. It’s a catch 22 situation and results in a number of prospective customers bounce away from your landing page simply after looking at the price.

There are essentially three pricing models when it comes to cloud based learning management systems. The most common option is a freemium model where your product is made available for free either with a limited set of features or for a small number of users. Customers who need advanced features or want to make the product available to all their users may need to upgrade to a paid version. The subscription model is equally popular and relies on a limited-time free trial to get customers to experience the product before they make a purchasing decision. The third alternative is to provide a license to your customers.

As Monica Brady-Myerov, the CEO of ListenWise points out, listing out a price to your customer before you have a chance to talk to them could result in them walking away even without opting for a free trial. She recommends hiding your pricing from your website and instead let prospective customers to ‘Request a Quote’. This makes it easy for startups to look at your student size, the features they need and their brand before quoting a price. It is a good idea to allow your customers to experience the features in your EdTech product before you quote a price since it enables your business to demonstrate your worth.

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Hiding the listing prices or offering a free trial is not unique to the EdTech world. What makes the challenge unique for entrepreneurs in this industry is the fact that the decision makers are not the end-users. As a result, there are instances where a free trial alone may not be enough to convince a school or college to pay for your product.

According to Maria Burns Ortiz, the founder of EdTech startup 7GenerationGames, the biggest challenge for startups in the industry is the first sale. This is because schools have an incredibly high renewal rate. Also, the time it takes to move from your first pitch to the final sale can be anywhere between two to three years. But once you are in, you are most definitely in since schools do not abandon their partnerships so quickly.

This is similar to industries like web hosting or insurance where the incredibly high competition among service providers can make user acquisition expensive. However, customers seldom switch providers contributing to high retention rates. What providers in such industries do is to provide their service for the first year at extremely low rates. This makes the offer attractive to potential buyers. This of course comes with a caveat that prices will move up upon renewal and the high retention is what these business bank on for profit.

EdTech startups could take a leaf out of these industries and focus on bringing down the conversion lead time through attractive sign up prices. Free trials, along with low priced offers help cut through the red tape faster and this is a strategy that should help EdTech businesses gain ground in this industry.

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