The Account Payables Series: (Part4) Pricing and Value.
The following analysis was completed as the news broke of Comma exiting the AP market which you can find out more here.
When I first started learning about all these solutions, I found that whilst all the AP products are SaaS based, the pricing for them isn't always straightforward and can even become a complicated beast when you factor in all the different features to then derive the ultimate value that you might be getting in the real terms of time savings.
In this blog, I'm going to do my best at breaking these down and giving my perspective on price vs value.
The Pricing Models
There are 4 types of commercial models that precede the solutions which are outlined in Figure 1, which are:
Whilst grouping these together gives some idea of how each of the products are charged for. We see that the Pay monthly tiered system is the most common way that an SMB/accounting partner is charged for the product however it doesn't tell the full picture of how much value these users can get or whether a particular model works better or not. I'm going to drill down into the detail below for each category, so that you can better understand how they appear in reality.
Pay monthly tiered system
Payment transaction tiers is very similar to how a phone company charges for data on a sim only plan. Pay a set amount per month for a fixed number of payment transactions. Use more than your allowance then your charged overage for how many payments you went over the plan that month. Didn't use all the payments for that month, then you'd still pay ￡XX for the month. Seems pretty fair right?
Thinking about our users that are accountants and business owners, they might not necessarily know initially how many payments they will be making from month to month.
And that's where part of the challenge lies, because you might make 36 payments in 1 month and 100 payments in the next month. So what would be the best plan for me? Or should I update my subscription every month?
Comparing our core accounting players Xero and Sage (Fig 2.1), we can see that the pricing in this category is priced out quite similarly, and appear most competitive vs Pleo and Telleroo. The only downside is that Xero itself remains very manual using an account transfer method, whilst Sage has the much more streamlined process with Balance on an e-wallet.
In figure 2.2, Pleo pricing appears expensive, however is offered as apart of a wider offering which includes expense management, so quantifying in real terms of time savings is not obvious initially.
Telleroo on the other hand being a payments solution only has tiers up to 250 payments, but from speaking wither their customer support, plans are auto-adjusted in accordance to how many payments you make. So if you made more than 50 payments one month then you'd be charged ￡55 for the growth package instead of start up.
Pay As You Go (PAYG)
PAYG is the typical model that you'd see from a business account charging around ￡0.20 - ￡0.35 per transaction, however it's not uncommon for some to have free bank transfers, as money is made on other products for banks.
Credec is currently the only player in the market that is using this payment model where a monthly ￡10 access charge is required, then a fee per payment is made depending on BACS or FPS payment rails being used.
In the past, Telleroo previously used a similar model with access charge + fee per payment, however changed to the tiered model seen in figure 2.2.
The benefit for this model with accountants and business owners, is that it works well for businesses which have seasonal payments where volumes can fluctuate, so users will be getting their value for money. However the drawback is that actual per payment in reality with the access charge + Transaction fee, so comparing how Credec is priced vs others, it's not as competitive (more on this later).
Though if this was removed the access charge and kept more basic pricing where its 30p per transaction, then it could come across as more straightforward for those businesses where payment volume fluctuates.
Unlimited Payments
The equivalent of an all you can eat buffet. Pay a fixed fee per month and you get an unlimited number of transactions per month. So no matter if a user makes 1 or 1k transactions in a month then its only costs the price outlined per month.
For the company using this, it's pretty much all upside and no real downside unless they don't make any payments in any given month. So overall very little friction for users considering any one of these solutions if they have account payables needs for payments.
Diving into figure 4, Comma, Crezco and Nook provide pricing that is compelling to say the least, given the price per month outlined. The only thing I'd see as a drawback is for Crezco where they only provide a maximum of 250 transactions, so may not work with those SMBs that have higher volumes than average, which then leaves them with Nook as the only option (which isn't a bad one at all).
Fixed fee % per transaction
The fixed fee model is something that is more common with account receivable solutions such as Stripe, Paypal and GoCardless where payment links are integrated into an invoice and fees are charged at a % of value for the transaction.
Billhop is quite similar except it's for paying suppliers with a card. and as previously noted in Part 3 around this payment method, its typically 2-4 days for a payment to be fully settled down due to the different card networks involved with banks on both the payer and payee ends.
If I look at this from a perspective of a business owner in the UK wanting to pay a bill using a credit card. It probably works out more costly vs most of the other solutions for above. For example, ￡100 transaction will have ￡0.295 payment fee for using Billhop which will likely be more expensive in fees for user, with multiple bills of value >￡100.
So why would anyone user it? Well if you're a user in the UK, you might have a credit card that offers rewards. Credit cards are great at extending cashflow, but if you add potential rewards in cash back, vouchers, air miles then the cost of payment fee will likely be outweighed by benefit, which is why cards are so dominant as a payment method in the US. In the UK though, I have yet to see any business credit cards that will equate to benefits that are worth more than 2.95% credit fees. But if I'm wrong, reach out and let me know.
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Pricing Comparison
Overview
When looking for a new product that meets a need, pricing plays a big factor to how value is perceived and how easy it is customers to make a purchasing decision. Having talked about all the different commercial models for our account payables solutions, we have a rough idea on pricing comparatively, but now we'll drill into this.
The SMB segment itself can range from a sole trader that products only a small volume of bills to a medium sized enterprise that could have 100s of bill payments that need to be made. Figure 6 demonstrates this with the payment transactions per month ranging from 10 to 350 payments, with a general sweet spot of 75 payments per month.
Examining the pricing using figure 6, we can see where pricing becomes an interesting topic. I mentioned earlier that pricing for Pleo is seemingly expensive compared to other solutions; however a user might already be reaping the time savings from it already and so the extra ￡1.50 - ￡2.50 could be completely justifiable.
Similarly with Crezco as a payments proposition, also offers the capability to collect payments which doesn't seem to penalise users with extra fees, thus accompanied as an account payables product can again let those users maximise value out of the product suite.
Speaking in broader terms, in the 10-75 volume, we can say Xero is the least expensive. But now the news that Xero will discontinue this product and be free until 26th Feb 2024, we can make a case for businesses already using Xero Pay with Wise to continue til that date then move onto one of the more agnostic solutions later on, assuming its already meeting those needs.
Getting value for money
As we dive deeper into the average cost per transaction (figure 7), it begins to tell a slightly different story. We can see that the tiered pricing model such as Telleroo being less favourable across the board even though the average price drops from ￡3.50 at 10 transactions to ￡0.63 at 350 transactions as volume increases.
Similarly we can say the same for Sage where the average price is ￡1.80 per payment at 10 transactions and dropping down to ￡0.20 per payment at 350 transactions, which is much more favourable and incentivises those users to buy the higher package as the companies payments scale.
The biggest callouts here are Nook and Crezco because of their monthly unlimited payments model. At 10 transactions, both have an average cost of ￡2.00. But as transaction volumes scale per month, they both really become the most competitive in the market, even if Crezco limits their monthly transactions to 250.
Overall with Nook charging 6p at 350 transactions is incredible value, as it offers international payments and payroll capability atop of domestic bill payments and seems like a deal that's hard to beat for those businesses looking for a product that has scaled-value as payment volumes increase.
Price to value
Having broken down pricing portion of this article, we need to remind ourselves that the value for SMBs and accountants is streamlining Account Payables, which we can say some solutions do better than others as outlined in figure 8.
Additionally, we have the additional features and adjacent that expands the use cases for these solutions such as payroll payments and account receivables, thus deepening that value a user receives.
Providing an objective view regarding price and value, what you see in Figure 10 and 11 are the solutions mapped in the Pricing Strategy Matrix, giving insights into how PMs and strategists have positioned their products in-line with the market.
Premium Segment
Regardless of volume, Pleo and Telleroo are priced into this premium segment. Pleo, I think can be justified given its a strong player in expense management already, so getting value out of the bundled bill payments solution is just a no brainer.
Telleroo on the other hand has capabilities like Sage incl payroll (but edged out with international bills), but I do have a little bit of a hard time recommending them over other solutions given the average cost is the 2nd most expensive after Pleo (see figure 7).
Economy Segment
In this segment we have Credec and Xero. Overall fairly well priced across the board, but with a much more limited feature set compared to any of the others as highlighted in figure 9, meaning that their overall products are very basic. Factoring this with the bank account transfer method of facilitating payments, it much less streamlined overall as discussed in part 3 - Payment Methods
Penetration segment
This segment is probably the most interesting overall. If we start with the 10-75 transactions (Figure 10), Sage's price is more expensive than Xero but has a stronger feature set, and so fits into this segment. As payment volume scales to 100 to 350, the price does get cheaper hence why it's positioned closer to Xero in figure 11.
Crezco and Nook play in a league of their own though when we talk about Price:Value. They are both the most feature rich in bill payments but also across different adjacents where Nook offers payroll, workflow management and 2-way bill sync with accounting software. Crezco on other hand lacks in that 2-way bill sync, but has Account Receivable capabilities.
As noted with the unlimited payments pricing model adopted allows for average cost to fall dramatically as payment volume scales beyond 75 transactions, making them the lowest cost in the market. Add an industry insight based on my findings, I would have said both these players belong in the Premium segment. However, given how young the account payables space is and opportunity for it to grow into a multi-billion pound industry; any early customer acquisition through penetration pricing is something that can be valuable in the long run in building a loyal customer base and strong recurring revenue metrics like Average Revenue Per User (ARPU).
Summary
Assessing value in this space as a customer is an interesting challenge, but hopefully some of this would have helped any accountants, bookkeepers or SMB owners to have a better idea of what each of these props are offering and how the differing pricing and value props can be better suited.
Seeing more players jumping into this space with a much deeper breadth of product offers at a similar price, they make for a much stickier products which are harder to switch from. Additionally when we consider the average price falling lower with unlimited payments; these solutions like Nook and Crezco will have to offer additional chargeable adjacents and features remain both relevant and profitable; otherwise they'd fall onto slim or non-existent profit margins.
As we compare these agnostic offerings with those that Sage and Xero offer, we have to ask that question on whether it's still worth it to use the product add-on provided by the accounting package. And I would say it really depends on the user and whether they'd feel comfortable trying something new. But one thing I can say for sure is that it's hard to say no to some of these other solutions when they can provide so much value at such low costs per payment.
Thanks to those that made it this far. For those that enjoyed and found this useful, I would appreciate it if you give this a like. As promised in my next article, I will summaries my overarching thoughts and provide recommendations so stay tuned by hitting the Follow button.