- Side-by-side comparisons of old and new pricing schemes in UK, US, NZ, AU
- One plan jumped in price 460 percent (UPDATE: Plan includes Payroll)
- Companies with staff pay more
Xero’s announcement yesterday that it had revised pricing for its cloud accounting software sparked outrage on the company’s blog, as reported earlier.
At face value, the Small, Medium and Large plans seem to be cheaper as the rebadged Starter, Standard and Premium plans (the Standard is $1 more). But changes to the conditions will see Australian businesses with staff move up a plan.
Xero CEO Rod Drury claimed that 90 percent of its customers would pay less or only $1 more when the changes came into effect on December 9. (All prices include GST.)
Let’s look at the detail. How does Xero’s new pricing differ from the old in the Australian market?
Also below, a comparison between old and new pricing schemes in Australia, New Zealand, UK, US and Global.
Two categories come out on top. Micro businesses with fewer than five clients, five major expenses and very limited bank transactions pay 13 percent less ($29 to $25) on the Small plan, now called Starter.
The conditions remain exactly the same for the smallest plan. Five invoices, five bills and 20 bank statement lines per month; one payroll employee and up to 1GB file storage for attachments to invoices, expenses, etc. (All plans have unlimited users.)
Despite the heavy restrictions, Xero’s Australian managing director Chris Ridd claims there are thousands of small businesses using it.
Businesses on the large plan with less than 10 employees also pay slightly less (6 percent). The $64 Large plan is now called a Premium plan which start at $60 and run up to $90.
The added features (automated superannuation payments and multi-currency) remain the same on the Premium plans but the restriction on the number of employees will see a large number of businesses paying more.
The Large plan claimed it could service “hundreds of payroll employees” but a business with 100 employees will pay 40 percent more ($90 instead of $64 a month). Given that businesses with up to 20 employees could use the Medium plan on the old scheme, those that had no need for multi-currency or automated super payments would pay at least 25 percent more on the $80 Premium plan for 21-50 employees.
The biggest change happens in the middle. The Medium plan has been renamed as Standard and increased by $1. Features remain the same (auto super and multi-currency still don’t kick in until the bigger plans) but the number of payroll employees has been slashed from 20 to 1. (UPDATE: Xero has changed the Standard plan to apply up to five employees.)
This means that any business with more than
one five employees will need to move to at least the $60 Premium plan – or even the $70 plan, if it had 11 or more employees.
This represents a jump of 21 percent to 42 percent in the amount businesses are paying for their accounting software.
Xero’s Ridd says there are “thousands” of Australian customers using the Medium edition to pay just one employee.
“Being cloud based we can see exactly the sorts of volumes of paid employees across the various plans. It may surprise you, but in Australia two-thirds of our customers across the board are either paying less or are only paying $1 more as a result of these changes,” Ridd wrote in a comment on the company blog.
A Fair Increase?
Xero’s Drury says price rises are reasonable and overdue – he claims the company hasn’t touched pricing since 2006 despite adding innovative features such as document file storage, direct uploading tax forms to the taxation department and development of its accounting practice software.
Xero includes support for free. This is a big difference to the desktop accounting software model where a user pays a one-off fee for the program and an ongoing monthly fee for phone and email support (eg. MYOB Cover).
Tens of thousands of Xero users will be affected by the new employee restriction to the Medium plan and will pay at least 20 percent more by moving to a Premium plan. But they may have ended up on the Premium plans anyway.
Legislative changes in Australia will make automatic superannuation payments compulsory in July next year. Under the old scheme, Xero users would have had to pay 30 percent more ($49 to $64) for the automatic super feature.
“Those with higher volumes of paid employees and hence larger businesses is where the bulk of the price increases have been and we feel that is fair trade for the value they receive,” Ridd wrote in the comments.
Xero’s price changes have broken very unevenly around the world. Some countries the price changes moved a couple of dollars, while in others the price schemes leapt from three plans to six. In one market the top plan jumped a whopping 460 percent, effectively rebranding Xero as a tool suitable for medium businesses and away from its initial small or micro-business origins.
In Xero’s home country New Zealand, the pricing model was exactly the same, with a $4 price drop for the Small plan and $1 increases for the Medium and Large plans.
The UK had almost identical treatment to New Zealand. The three-plan model remained with a small fall at the bottom end (down by 3 pounds) and a one-pound rise for the middle and large plans.
Likewise Xero Global remained identical in structure with a US$1 increase across the board.
Australia faced the greatest upheaval, with a doubling of the number of plans from three to six (as outlined above), more plans than any other market. The median price rose by $16 to $65 – an increase of 33 percent.
The US plans recorded the biggest price rises. The revised pricing scheme followed the Australian model but offered three premium plans instead of four. The greatest difference was recorded by businesses with 100 employees. Instead of paying US$39 a month they now pay US$180 a month – a 460 percent increase. UPDATE: The reason for the price rise is that Xero included a payroll service that was previously sold separately. Chris Ridd, Xero’s managing director, said the payroll service was priced very competitively compared to other products in the US market.
The same Premium 100 plan in Australia cost half that ($90 vs US$180). However, the US Premium plans included Payroll direct deposit, eFile and ePay Taxes features that were unavailable in Australia.