The Price Is Right: Weighing Parcel Shipping Software Costs

Posted on Jun 9, 2021 By kschroedl Share:

Learn how a shipping software vendor’s pricing scheme can affect your business.

In many industries (outside of just logistics), the pandemic-driven highs and lows of cost, demand and supply have baffled the predictable trends of the market. However, resilient companies have practices in place to prepare them for success during these difficult times. These practices may include finding creative ways to meet customer needs while preserving their own value and investing boldly in capabilities for the business’ future.

One such innovative capability is utilizing some of the most advanced technology within the supply chain: multi-carrier parcel shipping software, which helps gain efficiencies and functionality otherwise impossible – like Automated Rate Shopping and millisecond transaction times that can handle unlimited shipping requests from unlimited locations.

To find the right multi-carrier shipping software, ProShip has pulled some key categories that require careful consideration: Core Technology, Pricing Scheme, Speed, Service & Support, Business Focus, and Updates. We’ve previously established the importance of choosing a parcel shipping software partner that can address the pain points in your supply chain with core technology that is created and supported in-house. The next key for finding the right logistics solution is to understand the Pricing Scheme.

Every vendor has its own pricing structure, so the deciding factor should be understanding the overall total cost of ownership of a software solution. The initial fees and charges should obviously be understood, but don’t skip the fine print – what are the possible extra costs? Are there monthly or annual fees due to SaaS-based pricing models? Do they change based on the company’s growth or expansion? Are there upgrade or data migration fees? These are just some of the questions that should be asked early on within meetings to review the company’s product.

There are several pricing options that the most common enterprise multi-carrier shipping software providers employ:

  • Subscription
  • Transactional
  • Perpetual licensing

Subscription

Software as a Subscription (SaaS) is priced annually or monthly and is exactly that – an ongoing subscription to have access to the software. Subscription-based software normally includes all the (sometimes) hidden fees in the subscription price including maintenance, upgrades, and technical support. With SaaS, a company itself does not have to develop any expensive IT infrastructure like servers, data centers, or admin staff. For a real-life example, think Netflix*.

*It’s important to note that subscription pricing may fluctuate, or you might find yourself in a situation where the cost may stay the same, but the services included may lessen. Also, the fees associated in a subscription-based pricing model can add up overtime and may quickly end up equaling more than a single up-front cost offering. It’s crucial to ask yourself if the low cost offering of SaaS comes with an acceptable standard to ensure long term success.

Transactional

In a transactional pricing scheme, a vendor charges the customer based on the number of transactions performed over a specific amount of time. Each transaction has been assigned a value, and the prices are multiplied by the number of transactions, then summed up for the allotted time. The structure of a pay-as-you-go pricing scheme can allow for greater flexibility and relieve some of the strain on cash flow, but this comes at a cost – literally. Because the total cost of service is related to the amount of work done, costs will increase when volume increases (peak season). In quieter times, costs will go back down. Too much back-and-forth, and your business will get whiplash. An important thing to note – watch for the built-in costs in year 1 and note what the variable costs could be for year 2, year 3, year 4, and so on. As your business grows, will this pricing strategy scale with it? Not likely – and you will pay for it.  For a real-life example, think about your energy bill – it’s billed by how much of it you use.

Perpetual Licensing

A perpetual plan is paid in one large sum, up-front. Typically, this type of pricing scheme includes annual maintenance fees which can cover upgrades or support but allow the customer to use the software indefinitely. The purchasing company has access to that specific version of the software by paying for it only once. With perpetual licensing, a company will absorb all of the costs associated with the IT infrastructure in the initial large sum payment. Think about buying a Playstation 4. The actual system is yours for life but there are new versions coming out with better features and that work with new games.

In truth, there is no one right choice or magic formula when it comes to pricing scheme. The decision should be made after careful planning and research into your company’s financial situation and what is the right fit for your business. A key step in that planning process should include understanding the total cost of ownership. Here are some questions you should be asking:

  • What are the upfront and annual costs and if volume increases, will these change?
  • Are there any hidden costs for upgrades or other license fees?
  • How often is the product updated? Is there any downtime associated?
  • What is covered in your support contract?

Acting with due diligence and understanding these costs is essential to making the best decision for your business. The pricing scheme is just a part of your research when choosing a multi-carrier shipping software. As we said before (and we’ll say again), you will also need to consider: Core Technology, Speed, Service & Support, Business Focus, and Updates. [Jump ahead and read the entire Multi-Carrier Shipping Software Comparison Guide]

The most trusted global provider of automated multi-carrier shipping software can address your pain points and has the support, flexibility, speed, and compliance to check all your boxes. Schedule a call with our shipping expert, Dave Salter, to get the conversation started!

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