Like most sweeping generalizations, “the construction industry is slow to adopt technology” can’t possibly reflect an entire, complex industry.
When it comes to construction, tech providers historically have favored only the largest builders — but digital tech is maturing and becoming more accessible across the industry, which has forced providers into reevaluating how they price and package the tech.
This article discusses current software as a service (SaaS) pricing structures and packaging and why more flexibility for both is needed for the construction industry. Hear from industry peers and SaaS providers about how they view the highly segmented construction market. The good news for small- to medium-sized builders is that there is now more flexibility than ever in how to acquire technology.
Current SaaS Pricing & Packaging
“The differences between a large specialty contractor and a small general contractor are so vast they may as well be in completely different industries,” says Bill Wagner, President of Penta Technologies.
Early adopters of new technology tend to be mature companies or enterprises with large budgets and scale. They have the infrastructure to pilot new tech with minimal risk. If it doesn’t work out, they move on to other solutions. And successful pilots, often subsidized by tech startups hungry for new customers, later lead to bigger, full-priced implementations.
Eventually, those winning solutions mature, evolve, and take on different forms or packages. The tech companies eventually develop new pricing models or add new features that extend their appeal to different segments and become accessible to companies of all sizes that want the same benefits as their larger competitors.
Predominantly, there have been three ways construction technology has been offered: unlimited enterprise use, per-user pricing, and per-project pricing, each of which has limited many contractors from adopting appropriate technology for their businesses.
Unlimited Enterprise Use
In this model, SaaS is available for use across an organization with minimal restrictions. Usually an annual or multiyear subscription, this model is intended for large enterprise power users, where there is no need to actively manage user licenses or costs. It’s a fixed and predictable annual fee; however, less rigid variations of this model have emerged in recent years.
The disadvantage of this pricing model is that it lacks flexibility for companies to easily adjust or negotiate their subscription to accommodate a state of rapid growth where more seats, service, and functionality are needed. The rigidity also prevents companies from reducing costs and responding to unexpected contraction during a down year.
Also, a SaaS offering may have several features that appeal across diverse functions in a larger company. While a small contractor may only use a subset of those features, it would still need to pay for the whole suite. For example, a large trade contractor might want a SaaS solution to provide accounting, payroll, timekeeping, and resources management, but a small trade contractor might not need timekeeping and resources management.
“In order for any pricing model to be efficient, it needs to align value with price,” said Jimmy Suppelsa, Chief Revenue Officer at Touchplan, a construction planning software. “In an all-you-can-eat model, a small customer pays a big fee for unlimited usage, and they are overpaying relative to other customers. But if they grow beyond the average usage, they are paying less than other customers. I would argue that neither extreme is good for the long-term relationship between a SaaS vendor and customer.”
Per-User Pricing
In theory, per-user pricing may be among the fairest pricing options. Large contractors with hundreds of potential users would pay the same per-person rate as smaller companies. But often technology providers will negotiate to lower per-user rates for bigger contractors in response to the revenue potential.
However, the more challenging problem is that per-user pricing diminishes the utility of the service by limiting who has access to it. Many SaaS products offer benefits by providing information transparency, and they rely on data input from many key stakeholders to deliver their value proposition.
This can be difficult because it incentivizes companies to have fewer users, and only one user can enter the data. On a construction project, there can be dozens of project stakeholders, including trade contractors.
And that’s an issue that Peyton Kringlie has seen first-hand at LS Black. “We are required to limit who receives access to the process and change our process to those requirements,” he said. “We often tell the software company that these terms limit the success of our solutions.”
Another issue is redundancy, especially with subcontractors. Trade contractors usually work on multiple projects concurrently, and with multiple GCs that have their own project management platform, for example. This could burden the trade contractor to pay for user licenses for redundant solutions to effectively collaborate or to comply with project/contract requirements.
Since this is cost prohibitive, they may simply choose not to use the solution or share a user license across the team or company; therefore, projects have gaps in information, and technology doesn’t deliver its full value.