That question used to be asked by Finance Directors and General Managers. Now it is also asked by CEOs and Artistic Directors, because the costs have become so significant, with so much variation. The reason for asking the question is the same: a confusing array of prices, costed extra items, and payment mechanisms, all of which makes it almost impossible to compare like-with-like directly. Ultimately, unravelling this then reveals that the ‘cost of ownership’ can be potentially many times more for one system compared with another.
This is a contentious issue, with over 16 serious suppliers in the UK marketplace alone, and therefore considerable competition to secure venue contracts. What I see are:
- complicated attempts to present some systems as costing less than others, and
- obfuscation of the basis for costings
- variations in what is included in the price
- under-estimates of key implementation costs
- confusing presentation of up-front and then recurrent annual costs
Finance Directors are supposed to follow the M.E.A.T. principle – the Most Economically Advantageous Tender – and secure certainty with containment of costs.
The Ticketing Institute tender process requires priced tenders to be submitted in a specific format, which helps compile a 5-year ‘cost-of-ownership’. I recommend this as the best time period to test comparative cost-effectiveness. In the UK the accounting and tax guidelines recommend or require that software is written down over four years (“25% straight-line” is the technical description). For most venues, 5 years is about the most frequent change cycle they can cope with, for a ‘mission-critical’ tool that interfaces with other customer-facing technologies, from phone systems, to websites to social media, especially where there are extra costs to third parties to change interfaces with other systems.
You need to compile a cost-of-ownership for more than three years to see a realistic comparison between ‘pay-as-you-go’ models and others, taking into account all the costs. Obviously your time and effort is a cost, and while some suppliers will say they will make it easy for you, one reason for planning in terms of 5 years is the internal cost of changing systems. And many venues have longer cycles: Tickets.com has users who have been on their Databox system for 12 years and more.
There are a number of elements which make up the cost, so what is included, or not, is important, but the key factor is the pricing model used:
From recent tender processes, there are four types of pricing model which are regularly used:
- The Fixed Price Tariff – usually involves a life-time or fixed term license to use the software, with the proviso that you must also pay for the annual software maintenance charge. Both PatronBase and Tessitura supply on this model to not-for-profit users. This can offer the lowest cost of ownership and best value for money.
- Terminal-User Based Licensing – essentially involves a license fee for each installed terminal/concurrent user, often charged as a higher amount in the first year, then a lower charge in subsequent years; some suppliers have different charges according to the character of the users – ticketing, administration, marketing. The installed terminal basis can be more expensive because every terminal on which the software could run is charged for; the concurrent user basis costs less but can be annoying if too many users try to log-in at once. Blackbaud used to supply Patron Edge on this basis. Though many venues don’t like the restriction of the concurrent user basis, it can offer good value for money in some cases.
- Pay-as-you-go by volume – this charges on the basis of the volume of sales – the number of tickets sold – with sometimes quite detailed description of what counts as a ticket sale. Some systems will sell a life-time license for a specific annual volume of tickets, and also sell additional tranches of volume as required in the future; AudienceView will supply their system on this basis. Some systems agree an annual volume and tariff, and then charge monthly based on the actual number of tickets sold; ENTA will supply their system on this basis. Some suppliers confusingly refer to “per-ticket fees” as the basis for their charges, and many users assume these are applied to the ticket purchaser’s transaction – in fact, they are simply the suppliers’ way of calculating their charge to you. Some suppliers will include the provision of terminals, Chip and Pin readers, etc. in with their service, likely to be externally hosted. Any charge based on volume will become more expensive in total cost with larger numbers of sales, though the amount charged per ticket sold will usually reduce, usually well below 25 pence per ticket through any channel, in the UK. It is worth noting that some suppliers whose charges have steadily reduced in recent years, are still charging older clients at higher rates – it is important to re-visit and negotiate per-ticket based rates. At an appropriate size and scale, this model can be cost effective and good value for money.
- Pay-as-you-go by value – this charges on the basis of a commission on the value of sales – the gross value of the tickets sold – with sometimes quite detailed description of what value is included. It is typical for this to be a low sounding percentage commission of 2-3% on sales totals, but doing the maths is important: 3% on £100,000 is £3,000 and on £1Million is £30,000, per annum, the charge recurring every year. Some suppliers impose a minimum monthly charge. Spektrix, TicketSolve and SeatAdvisor charge on this commission basis. The complication with this charging model is the effect on the rest of the operation. For venues which split earned ticket sales income with promoters/producers, these will usually exclude such commissions being deducted off the gross and require the amount to be deducted from the venue’s retained share, likely to be under 25% of the total. This ‘pay-as-you-go by value’ model can be further confusing of comparisons, since some of these suppliers also offer “no-up-front-charges”, so making what is included, or not, very important. It can still make this the most expensive model by far.
The Price Model may determine how the quoted price is calculated, but there can be a list of additional costs because most suppliers now include separately quoted elements to enable their system to go-live:
- Most suppliers add “Third Party software” with their solutions – quick addressing, payment gateways, etc. – there can be additional charges for these, sometimes involving an up-front license fee then recurring annual license fees, charged either on the basis of volume or the number of users. Suppliers seem to make different deals with these third party companies, so the costs vary between suppliers; some simply pass on the cost to their users while others add a mark-up. All suppliers will charge these as additional costs.
- Payment Gateways have become a significant cost. There is usually an up-front initial license fee, perhaps an installation and set-up cost, and then an annual or sometimes monthly charge. There can then be transaction charges (on top of any credit/debit card commissions), at different levels for on-line, phone and counter. Payment Gateway costs are an issue for Finance Directors, since they can vary by volume and the channel, according to the deal in the contract. Ideally certainty is required.
- There will be hardware and telecommunications costs for Chip and Pin readers at the counter. Suppliers offer payment gateways on widely differing terms, some securing volume rental agreements to keep the cost per venue down, others adding a margin to pay-as-you-go charging. Watch out that your bank does not require you to use a particular Payment Gateway. It can be necessary to move bank accounts to save money. Finance Directors have to demonstrate that their banking terms and charges conform to that M.E.A.T. principle.
The major up-front charges have a significant impact on cost, being charged pre-go-live in the first year. Suppliers seem to treat these quite differently, some offering a fixed price quotation, others simply an estimate. The impact of this is considerable in terms of achieving certainty.
- The one-off, pre go-live costs for system configuration, commissioning and training can be a major element. Some suppliers either include these costs in their “pay-as-you-go by value” model, such as Spektrix, or some quote a set additional charge for this element, such as PatronBase. Others quote on the basis of an estimate of the costs (so not a fixed quote), usually recognising the size and scale of the operation in the process. Unfortunately, some suppliers have been found to be under-quoting to try and get the apparent costs down, relying on being able to charge more during implementation. These charges are usually based on person-days, plus their travel and subsistence expenses – watch this: a supplier may bring in their expertise from North America. Finance Directors may prefer to book and pay for local accommodation directly to control some of the costs.
- Some suppliers give a Statement of Work, and charge up-front for what they specify in it, such as AudienceView and TopTix. This is intended to encompass all the things they have agreed to deliver for the go-live, such as additional software development, customisation of the supplied system to meet the users specific needs, interfaces with third party solutions, etc. It can seem that it is necessary to include in the Statement of Work everything about the capabilities of the system said during the sales process. Some suppliers run a post-sale “analysis workshop” or “scoping session” where they discuss the implications of installing their software in the venue, and from this arises the content of their Statement of Work, which is then signed off by the venue. This runs the risk of a larger figure emerging in the Statement of Work than estimated in the priced tender submission – remember that these can be negotiated. Note also that a “customisation” may be specific to your venue and not survive a system upgrade – avoid them if you can.
- The hosting of system servers can be an extra cost. Hidden throughout the discussion of pricing models above, is the issue of how and where the system is hosted and managed, again involving much fraught discussion. Outside the ticketing industry, advocates for the “Cloud” – the external hosting and managing of a system at a central location by the supplier, usually “Software as a Service” (known as SaaS) – argue strongly that this is always lower in cost than solutions hosted and managed in-house; unfortunately, it always costs much more in the ticketing industry so far. In a recent tender where external hosting and system management was required, the extra costs ranged from £3,500 per annum to £30,000 per annum. Now, there are differences in the quality of server farms and their connectivity and attended service, but a factor of 10 from lowest to highest is not a reasonable cost range. There is no doubt that external hosting can be advantageous at the right price.
- As indicated above, suppliers using the ‘Pay-as-you-go by volume or value’ models often provide hosting as part of “Software as a Service”, included in their price, and see this as distinct “added value”, with them managing the servers and the system for you; there is no doubt this is a benefit, if it is cost-effective too. They also claim it can lead to significant savings for the user, since the ticketing system and its telecommunications are maintained and supervised by the supplier, either reducing staff time and costs or releasing more time for customer-facing sales. It is also claimed that users can save on ICT staff and hardware and software maintenance costs, since everything is covered in their single charges – though some suppliers do charge annually for support even under the ‘pay-as-you-go’ model.
While the ‘pay-as-you-go’ payment methods apply as either monthly or annual charges, which may be in advance, or may be adjusted to the actual volume of sales, the other models offer a wider range of supply and payment terms, which can help with cashflow. Separate from the ‘Software as a Service’ model, which is a revenue charge, the Fixed Price Tariff or Terminal-User Based Licensing is usually treated as a capital item, as can volume licenses under the ‘pay-as-you-go-by-volume’ model, especially by not-for-profit charities, local authorities and funded venues. Since “Cash is King”, achieving certainty of costs and managing their impact on the cashflow is very important, so the capital approach is helpful.
In essence, as a capital item, this means that, apart from any annual license and support costs, the system is paid for up-front at the time of acquisition (It is also possible to capitalise the annual license and support costs into the supply contract for the initial few years, often 3 to 5.). However, it is worth noting that there are payment mechanisms to assist in achieving the purchase if the capital cost is not immediately available, to manage cashflow. In the past, suppliers have offered leasing and instalments as a purchase method. PatronBase offers payment in instalments over three financial years to venues that can make the case to them, amortising the capital cost over three financial years (typically about eighteen months in practice for cash-flow purposes: March in financial year one; June in financial year two; June in financial year three).
Thinking about these options emphasises that system costs from different suppliers need to be carefully compared, and the costs and cash flow properly accounted for over the 5-year anticipated life.
The Basis for Prices
In writing the above I have set out to be objective – describing the situation. This section is inevitably more subjective. Frequent discussions are around questions such as:
- Are you happier being supplied by a bigger company or a smaller one?
- Should a system cost more from a re-assuringly bigger company than a small one?
- Has the impression of the bigness of the company come from its premises and overheads, willingness to sponsor, sales team and corporate presentation, and how much extra should you pay because of it?
- Is a larger supplier more reliable, financially stable, and better able to deliver support at short notice?
- Where is the supplier based and what kind of operation do they have in our country?
- Who owns the company and what are their long-term intentions?
- How does their pricing model impact on your finances and cashflow – revenue and/or capital?
- What constitutes the MEAT (Most Economically Advantageous Tender) for your organisation?
Clearly subjective issues. But how far can such subjectivity be deployed in decisions involving sometimes hundreds of thousands of pounds?
One CEO of a smaller supplier explained openly to their user group how and where their company costs came from, and explained the ratio of staff to users for support, revealing to me in the process that their small company had a much higher ratio of support staff to users than much larger suppliers, so inevitably the smaller company could deliver more direct instant hands-on support.
One COO of a larger supplier pointed out that they had financial challenges in giving extra help and support to some of their arts users, because the users did not have big enough budgets to pay for it, and there was not enough value in their contracts for the supplier to ignore recovering their costs for interventions. This certainly demands that users understand what they are getting into when contracting with some suppliers.
There are real issues as viewed by some suppliers about the “intelligence” and “skills” of users’ staff. The suppliers do not think it is their responsibility to incur costs making up for the lack, especially from high staff turn-over and absence of in-depth training. Venues do need to commit enough budget to get the best out of their software ‘solutions’.
The most challenging part of the question “How much should a ticketing system cost?” is about the level. From tenders, the Fixed Price Tariff suppliers can quote around £10,000 for licensing costs, though first-year costs are higher including up-front buypropeciaonline.org costs. Typically, Terminal-User Based Licensing costs more, especially for larger installations (obvious really) and this will impact on annual support as well as up-front costs; some suppliers have however varied their costs considerably in the competition to secure contracts. Unless your venue has a low volume or value of sales, all the other models will cost significantly more, especially from larger suppliers with bigger teams, perhaps working with higher volume users.
Any “pay-as-you-go” mechanism quickly costs more than Fixed Price Tariff or Terminal-User Based Licensing because of it varying by the volume or value, and because the charges generally recur every year. While you may pay less in the first year, you will pay more in the long run. This is the obvious choice between capital or revenue purchase. Where you can buy an agreed annual volume for a set total price – ENTA and AudienceView will negotiate on this, for example – these can be more competitive. Though the ‘Cloud’ based “Software as a Service” suppliers will argue strongly against it, some suppliers will reduce their cost by supplying the system for local or in-house hosting by the venue. The savings can be considerable as referred to above.
From tenders, the biggest challenge is the revenue cost of ‘pay-as-you-go by value’. I have seen tenders where someone in the venue has pointed out that Fixed Price Tariff supplier X is charging £30,000 up-front whereas ‘pay-as-you-go by value’ supplier Y is only charging £25,000 as a commission on their sales, with no other costs, and suggesting they will make savings on other costs. But including support and other costs, over 5 years, supplier X’s solution would cost about £50,000 in total while supplier Y’s would cost £125,000 (more if ticket prices increased over the 5 years). I have asked for the savings to be quantified and I have never found them get anywhere near that £75,000 difference.
Of course, in the case of a larger venue, then the Fixed Price Tariff supplier X’s solution costs a similar amount regardless of scale, while the annual commission charge from ‘pay-as-you-go by value’ supplier Y may now exceed even the 5-year cost of the latter. One venue CEO wondered exactly what they would get as a benefit for spending more than £200,000 extra over 5 years simply to have a ‘pay-as-you-go by value’ solution. Clearly, ‘pay-as-you-go by volume’ is usually better actual value than a commission-based solution, regardless of the low percentage.
So there is still no simple answer to “How much should a ticketing system cost?” to help either potential purchasers or their potential suppliers. The awkward answer is that “it all depends”: on fitness-for-purpose, on volume and value of sales, and just what you will have to pay for, and whether you can manage capital or revenue purchase. Though not everyone will like me saying it, there are moral issues in being a supplier to charities and not-for-profit organisations, and there are also responsibilities on charities and not-for-profit organisations to ensure that they procure with due diligence to enable them to achieve their objectives most cost-effectively. Caveat Emptor: Buyer Beware.