Following on from the excellent CSA research on pricing models, in this blog entry we’re considering the benefits of paying for translation services as a monthly subscription fee versus the traditional per word basis.
Ian:So let’s start this discussion with a reference point. What do we mean by subscription pricing and how is it different from other pricing models?
Tim:Well if you’re old enough, you’ll remember when you paid for phone calls per second or minute on top of a fixed line rental fee. You might remember when your dad looked at the phone bill and shouted at you for spending too much time talking to your friends! Nowadays we don’t think about this with unlimited minutes and texts and unlimited data offered on many plans which is a much simpler way for everyone to use their phones. That’s the subscription model which we’re all used to.
The translation world is stuck with an old-fashioned charging model, akin to paying for phone calls by the minute, except we charge by the word. This is painful for customers and for translation companies too. Paying per word on jobs slows things down and adds a level of overhead to running a multilingual content process.
For example if you want to get some new website content translated, you have to go through the process of asking for a quote from your translation company or gathering a number of competitive quotes from agencies. This means that each company bidding has to go through an analysis of your content working out what level of repetitions you have etc, and in the end only one of the three bidding gets the work. You may ask them to provide a trial translation as well, which is a cost for the bidding companies.
Most customers have ongoing translation requirements, and despite the volume varying over a 12 month period what’s needed is a ‘bucket’ of translation capacity that can be drawn upon over that period.
If a customer who wants a translation needs to go through a quotation process or at a minimum has to raise a purchase order and then process and pay an invoice, it’s a lot of admin work. Most customers have ongoing translation requirements, and despite the volume varying over a 12 month period what’s needed is a ‘bucket’ of translation capacity. With this in mind I wonder why we’re still stuck in this world of having to base everything on charging by the word.
Ian:So you think that the same change is coming to the way translations are priced? Some kind of fixed charge gets you “unlimited words”?
Tim:I drew an analogy between translation being paid for by the word and the old fashioned telephone charge by the minute, but this analogy only works so far. The major difference between the two is that if you use a telephone for an extra minute this has a marginal cost of zero, but getting an extra word of translation done costs an extra x amount of someone’s time; there’s a marginal cost associated with translation that there isn’t with telephone time.
To use another example – your Netflix subscription. You pay 7.99 per month for this, and some months you use it a lot and some months you don’t use it at all, but it’s still worth paying 7.99 a month over a 12 month period. From Netflix’s perspective it makes no or almost no difference to their costs if you’re using your subscription a little or a lot. But the marginal cost of getting another 1,000 words of translation done is a half day of a professional translator’s time.
However there is a definite desire from the customer’s side and the translation company’s side to simplify the process. The difficulty lies resolving the tension between the desire for simplicity and the very real marginal costs of translation. Every single translated word has a cost associated with it, although using machine translation does get you closer to the zero marginal cost of the phone minutes analogy.
The difficulty lies resolving the tension between the desire for simplicity and the very real marginal costs of translation.
I think a subscription model that reflects the likely volume of translation over a 12 month period is the way to resolve this tension. The difference is that you’re not paying per project but are paying per month on the basis of what you expect your translation requirements will be over a 12 month period. This model gives a number of benefits to the customer because they can pay a flat fee per month associated with their level of usage. This also helps to flatten revenues for the translation company.
There are potential cash flow implications for the translation company, because if there’s a marked seasonality in a customer’s requirements and most of customer’s translation requirements are at the start of the 12 month period, then that’s when most of the translation costs will be incurred. But provided that seasonality is not too extreme, a temporary hit to cashflow is well worth the major benefit of simplification.
Ian:And of course the translation agency will be able to plan better for the resources it will need in the way of translators and can book them in a timely manner that reduces the need to scramble for staff.
Tim:Absolutely, that’s one of the main challenges associated with our work. But that aside, there’s a big advantage for the customer paying £5,000 a month for x number of words of translation over a 12 month subscription period. You can set aside the question of what you translate on a daily or weekly basis and can simply regard translation as a utility you can call on as and when you need it. You can keep track of whether you’re more or less in line with your expected usage over 12 month period and if you’re above your average in one month and below in the next, that’s fine as you’re paying the same amount each month.
When a customer has to ask for 20 quotations a month, raise 20 POs and pay 20 invoices it’s a real pain point. The idea of being able to pay a fixed sum of money and monitor usage over a 12 month period is something which has obvious appeal and which customers are generally very comfortable with.
Ian:Because this subscription model is quite different from the pay by the word translation that everyone is accustomed to do you think that this concept is a challenging one to persuade customers to adopt?
Tim:No I don’t think it is, and we have two customers already on subscriptions. Customers are very open to the idea of moving over to subscription because they hate the complexity of getting translation work done. When a customer has to ask for 20 quotations a month, raise 20 POs and pay 20 invoices it’s a real pain point.. The idea of being able to pay a fixed sum of money and monitor usage over a 12 month period is something which has obvious appeal and which customers are generally very comfortable with.
I think the industry is stuck in a kind of an outdated rut in how it thinks about this; we need fresh thinking to kick us out of the deeply ingrained culture of per word pricing.
Ian:What happens if a customer commits to a subscription but then finds they doesn’t have the translation requirement that was forecast?
Tim:Here are a couple of observations about that. If you’ve used, say, 500,000 words in the previous 12 month period it’s very likely that you’re going to use at least 500,000 words in the next 12 month period. Generally speaking people don’t stop translating their content into a particular language, and the trend is for people to translate into more languages. If you can sell your product or service into one market it’s very likely that there’s another market waiting for your product or service. This is a huge simplification but looking at it on a macro level this argument holds and requirements tend to tick up rather than down.
There is a level of risk that’s taken by the translation company and by the customer in the subscription scenario and it’s fair that there should be some sort of sharing of that risk. The way we handle this on our end is that if there’s a significant under usage then we give a rebate. If there’s usage above the subscription limit, it’s easy to add words to a subscription. But the end result is a massive simplification of the translation process.