I’ve heard on occasion that some SMS providers are offering unlimited SMS marketing packages for new clients. Sounds like a good deal right? It costs your business $99/month and don’t have to worry about how many SMS campaign subscribers you have, how many messages you send, etc. The problem with these types deals are that the goals of the SMS provider and your business are completely opposite. Let me break it down for you.
First let me tell you how the SMS industry works, it’s pretty simple. There are a handful of companies in the U.S. that have access to send short-code messages to the mobile phone carriers, these companies are called SMS aggregators or SMS gateways. These SMS aggregators charge companies like Tatango.com who are considered an SMS Provider, a per message fee based on the total monthly volume of messages they send. This per message fee decreases as the total volume of messages increases. Companies like Tatango re-sell these text messages at a margin to their customers. As you can see from the chart below, as the number of SMS messages increase, the price per SMS message goes down for Tatango.
Now look at the business model for an SMS provider if they are offering unlimited SMS marketing to their customers. As the amount of SMS subscribers increases for a specific SMS campaign, so does the amount of SMS messages sent. With each new SMS subscriber added to your campaign, your business grows, but the profit margins for the SMS provider decrease. Therefore your goals are not aligned with the SMS provider. As a business owner, you want your SMS campaign to grow and bring in new business, but your SMS provider wants you NOT to grow as this increases their profits. Doesn’t make sense to partner with an SMS provider that doesn’t want you to grow does it?
What these SMS providers that are claiming unlimited SMS marketing plans are doing is what is known as “factoring”. They are assuming that the business will get to X SMS subscribers in X amount of time and send X amount of messages, then calculating a price to match that, making it seem like it’s an unlimited SMS marketing plan. If the SMS campaign starts to grow larger than they factored, the SMS provider comes back to the business and says that the offer they made was only for a a certain amount of SMS subscribers they thought the business would never reach and now unfortunately they have to charge more. The business pays the higher price because 1) they have your phone numbers and 2) you’ve been telling people to text SNAPPY to 68398 for the last 6 months and you don’t want to have to change that phone number to another provider.
That’s why I recommend you select an SMS provider with a tiered pricing plan. What exactly does that mean? The SMS provider should offer plans according to the number of SMS subscribers or SMS messages being used. As the amount of subscribers or SMS messages increases, so does the cost for your business. This makes sense as both your business goals and the goals of the SMS provider are now the same. As your SMS campaign grows and brings in more customers, the profits of the SMS provider grows as well. This is a great relationship to have with your SMS provider as they are financially encouraged to help you grow your SMS subscribers and therefore bring you additional business. See the chart below for how your goals and the goals of the SMS provider align.
Have a question about pricing models for text message marketing? Drop me a line and I’d be more than happy to answer any questions you may have.