What’s Best for Your Lab: Volume or Subscription-Based LIS Software?
Laboratory information systems (LIS software) are the backbone of every lab. It’s what keeps a lab running and producing at the rates demanded of diagnostic labs today.
Being such an integral part of any laboratory means it’s not just a tool that can be ripped out and replaced every 2-3 years. It’s essentially the “heart” of your lab and when selecting a new LIS software, it MUST be vetted out very thoroughly to ensure it’s the right fit for your lab. As we have seen, when your team does not properly scrutinize and dissect a potential LIS software, laboratories end up spending unneeded time, effort, and budget on replacing the LIS software that they “thought” was a good fit.
The capabilities a LIS software provides are important, but it’s just as equally important to fully understand its pricing structure and how it will affect you long term. Two of the most common pricing structures we see are volume-based pricing and subscription-based pricing.
For this blog, we’ll go over:
- What is volume-based pricing
- The advantages and disadvantages of volume-based pricing
- What is subscription-based pricing
- The advantages and disadvantages of subscription-based pricing
- Which is best for your lab
Volume-Based Pricing: Pay as You Play LIS Software
Volume-based pricing, also known as “Pay as You Play” is a pricing strategy that correlates directly to how much you use your LIS software. Meaning for every case/specimen the lab processes you will be charged for that case/specimen to be run through the system.
For example, let’s say your lab processes 100 specimens a day. Your LIS software vendor will charge you $2 dollars per specimen with the volume-based pricing model. This means for you to process 100 specimens a day, you’ll be paying $200 dollars every day just for your LIS software.
Now let’s calculate how much this would cost per year running the same 100 GI cases a day with a cost of $2 per specimen.
- 100 specimens x $2/specimen = $200/day
- $200/day x 5 days/week = $1,000/week
- $1,000/week x 50 weeks/year = $50,000 a year
Now, say your sales team starts humming and you just happen to bring some large clients onboard over a few years, invariably increasing your case volume to 500 specimens per day, this is how your cost would grow exponentially:
- 500 specimens x $2/specimen = $1,000/day
- $1,000/day x 5 days/week = $5,000/week
- $5,000/week x 50 weeks/year = $250,000 a year
Advantages of Volume-Based Pricing LIS Software
Naturally, like everything, volume-based pricing does have its advantages that may be just what your lab is looking for.
- Volume-based pricing does align with how your lab performs. Meaning you are paying for what you use. This can be especially beneficial if your lab loses business or accounts. For example, if your lab were to lose an account and lab volume dropped, the price you pay for your LIS software would also drop reducing some pressure.
- If you’re a smaller lab, that is not interested in growing by adding specialties or acquiring a different lab/s and the volume of cases you process per year is below 5000, then volume-based pricing is what is best for you! This pricing structure is ideal if you have lower volume levels as it allows you to keep your costs low.
- Volume-based pricing is also ideal for startup labs. As you can imagine, when starting up a lab, comes with a lot of unknowns around sales numbers and providers.
For a startup lab with minimal business, it could be risk aversive to start small until you have enough case volume to build higher confidence about the long-term prospects of the venture. In this case, volume-based pricing, with minimal capability and functionality, could be a great introductory LIS software that’s just right for the lab until more volume is guaranteed. But be mindful that with this approach, if you plan to grow, you’ll probably outgrow your LIS software and will have to replace it within a couple of years. We advise that you make sure to plan and budget for this.
Disadvantages of Volume-Based Pricing LIS Software
Now if you’re a lab that isn’t content with the status quo and has a vision of growing, then the volume-based pricing model is not for you.
If you’re looking to grow by acquiring or adding new services or specialties then you can just skip to subscription-based pricing as volume-based pricing. Volume-based will end up costing too much to keep your operations running – especially at a high-volume laboratory.
- Alignment with the performance of the business. As previously mentioned in the “pros” section, this is also a disadvantage – some may call it a “double-edged sword”.
We stay this because it’s simply not scalable. If your lab is growing in case volume, this can become very challenging as your LIS software costs could double or even triple each year. For a matured laboratory with defined and set budgets, it will become harder to manage and budget accordingly.
Several of our customers who have switched from known LIS software vendors offering volume-based pricing simply hated it. Stating it was more of a headache than anything else. Being able to run your lab painlessly makes all the difference.
- “Nickel and dimming” refers to the greedily or unfairly charging (someone) many small amounts for minor services. If you’ve ever been nickeled and dimed, you know what we’re talking about. – it’s never a good feeling to have a LIS software vendor look at you like a piggy bank.
As your volume grows, your LIS software cost could jump linearly, thus serving as a disincentive for growth. When the cost of your LIS grows each time proportionately to your volume, your sentiment changes from viewing the LIS as an investment to a cost center.
- Volume-based pricing assumes all specimens are treated equally and that the reimbursement for each case is the same. Ultimately, that’s far from reality. There’s an effort asymmetry when it comes to biopsy examination. Some cases are more routine, and others are more complicated and may involve further evaluation of molecular properties of the tissue using immunohistochemistry stain or other lab tests.
LIS Software Subscription-Based Pricing
Said best by Nicholas Tando at TechTarget “A subscription-based pricing model is a payment structure that allows a customer or organization to purchase or subscribe to a vendor’s IT services for a specific period of time for a set price. Subscribers typically commit to the services on a monthly or annual basis.”
As more and more LIS software vendors shift to cloud-based offerings you’re going to see a lot more subscription-based pricing as it’s increasingly being used for cloud computing across all industries. With a subscription-based model, customers typically pay upfront, prior to receiving access to the LIS software. Prices are often based on the subscription’s length and a longer subscription often translates to a lower cost.
Advantages of Subscription-Based Pricing for LIS Software
- Budget Simplification. Since most of the per-user subscription contracts are multiyear contracts, it’s a lot easier to plan out your cost structure ahead of them, thereby eliminating surprises and price increases.
- Subscription-based pricing is great for laboratories that process more than 5,000 cases a year. Once your volume grows to more than 5,000 cases a year, your lab’s needs change. You’ll need advanced functionality like; voice dictation, comprehensive macros, specimen tracking, and pre-populated fields that allow your entire team to work smarter and not harder. Essentially, you’ll want a LIS software partner that takes a consultive approach, like what we do here at NovoPath (shameless plugin alert).
- Scalable. With subscription-based pricing, you don’t have to worry about your cost basis as you grow your volume. Your costs remain the same as you grow the business, and even when you add more users, the cost increase is minimal at best.
Disadvantages of Subscription-Based Pricing for LIS Software
- If you are a smaller lab, it can potentially be too pricey. Subscription-based LIS software tends to be focused on providing a robust feature set that honestly is sometimes too powerful for low-volume labs.
- Doesn’t scale down easily during a downturn in lab volume. For labs that unfortunately are losing volume, this pricing structure could be more burdensome to the bottom line.
However, when you do find a true LIS software partner, you should be able to negotiate based on your needs if they do tend to trend down. Partners will understand and make sure to figure out a way to bring your volumes back up. Here at NovoPath, we’ve helped our clients with different selling strategies to look at other areas in the business to help navigate through complex times.
Which Pricing Model is Best for Your Lab?
Being in the LIS software space for over 30 + years, we have seen it all! We’ve seen labs that choose to go down the volume-based route hoping to cut costs only to end up paying more. In turn, we’ve also seen labs that have bought more LIS Software than they need.
Our recommendation really falls into a couple of key points:
- Build out your 5-year business plans and truly understand what/where you want to be in 5 years. Do you want to grow? Do you have the market to grow? If so – don’t do double the work and find a LIS software that can’t grow with you in your 5-year journey.
- If you are a smaller lab, don’t overbuy! There are a number of simple LIS software solutions available today that can not only fit into your budget but work for you.
- Read 7 Questions to Ask Potential Laboratory Information System (LIS) Software Vendors
- Don’t be afraid to talk budget with your LIS software vendors. Here at NovoPath, we partner with our clients, meaning we like to be more upfront with our clients and have open discussions around budgeting to ensure the partnership is the right fit. As we know, there is nothing worse than not being on the same page as your business partners.
- Lastly, contact NovoPath– We’re happy to speak to you and help plan out which option is best for you. Our team can help you understand what your potential ROI could be, the repercussions to be aware of, and show you what a true LIS Software partner should do.