When you approach a transactional data room provider for data storage services, you quickly learn that pricing plans are pegged to two factors: “How much” and “How long.” It doesn’t take long to find out that the less data you have and the shorter your project, the lower your virtual data room (VDR) cost.
But wait, there’s more. Literally.
Data room providers know these questions are notoriously difficult to answer. As we explained in a recent blog, deals often run longer than people expect (How much longer? A lot! Read the article for details.) They also know that data volumes often run higher than anticipated. In other words, users upload more bytes to their VDRs than they think they will.
The way some data room providers get noticed and make ends meet is by offering a low front-end price for a data room subscription. Pricing looks like a fabulous deal – until you exceed their storage or time limits. At that point, expensive overages are charged that reveal the upfront cost to be too good to be true.
The Link Between Data Room Pricing Models and Overage Fees
While “How much” and “How long” are the most common data room pricing parameters, other factors can play into pricing models, too.
- Per page: Limit on the number “pages” stored or accessed.
- Per user: Limit on the number of users accessing the VDR.
- Service support: Priced for different levels of customer service, onboarding, or professional support, such as archiving.
- Per transaction: Limit on the length or number of deals (for multi-deal VDRs).
When you exceed allocated limits in any of the stated categories, you face overage fees. These extra costs can be expensive and frustrating, leading to additional, unbudgeted costs and even embarrassing project delays if the data room is temporarily suspended due to non-payment.
You might encounter data room vendors that offer unlimited subscription pricing that charges a flat fee for unlimited usage. While this model may help avoid overage costs, these plans often come with a higher price tag. That’s not an option for all projects.
Why Do Data Room Overages Happen?
Skilled VDR administrators are great at keeping the size and quantity of documents in check as the project evolves, but overages are still difficult to avoid. Consider the confirmatory diligence phase. Uploading, downloading, and sharing activity tends to explode over a short period in the final deal stages. These volumes can’t always be planned for in advance and may result in significant overage amounts – depending on the pricing plan.
Contemporary deals and diligence also involve all kinds of non-text file types, including images and video. However, many data room services still operate in a text-based world and calculate their pricing on a “per page” model.
The problem is that the “page” in question is assumed to be a text-based file, which is light on data. When these services convert extensive document libraries or larger “non-standard” file types like images and video to the per-page pricing structure, the result can be significant overage fees due to an excess of non-text data.
Many overages are simply a result of vendor pricing structure. An attractive up-front cost often comes with massive markups on storage. There’s a built-in expectation that you’ll easily exceed your per page, per user, or per project allocations. As in any industry, if a price looks too good to be true, it probably is.
Analyzing Data Room Overage Trends: A Firmex Study
Curious about overage trends experienced by our own VDR users, we conducted a study of 3,000 deals on our VDR platform over the last two years. We were pleased to discover that only 17% of our sample experienced storage overages. The result suggests that a majority of Firmex customers – 83% – are purchasing the right amount of storage for their deals. The study confirmed for us that our pricing model is sufficiently clear and transparent for users to choose a data room subscription that meets their data storage needs.
When overages did occur, users exceeded on average their initial storage needs by 26%. For instance, if a customer started with 4 GB of storage, they ended up needing an additional 1.04 GB. Users starting with smaller data rooms had a harder time anticipating their needs or managing their storage usage, or both. On average, they experienced overages of 46%. If a room started at 1 GB, they ended up needed an additional 460 MB, nearly half a gigabyte more than the one they started with.
Smaller deals by smaller organizations are often the most impacted by unexpected costs. If the VDR provider charges unfairly high rates on overages, they could run into significant cost overruns.
Best Practices for Mitigating Data Room Overages
The following best practices help keep usage costs within expected levels.
- Understand pricing structures. Look beyond front-end cost. Read the fine print on back-end pricing to understand the overage fee structure. Go in with your eyes wide open and choose a vendor and a plan that suits your project’s requirements.
- Educate users. Let your users know there are storage, page, or user limits. Encourage efficient data management (e.g. avoid uploading duplicate documents). Train your users on best practices.
- Set clear data management protocols. As the project lead, you need to set upload and usage protocols. Be mindful of only giving upload capabilities to a limited number of responsible users. Monitor overall data volumes regularly. Keep an eye out for notifications. (Firmex, for instance, sends one when you’ve reached 90% of your storage limit, and another at 100%.)
Due diligence deals are complex and data storage and usage needs can be unpredictable. Whenever you’re contracting for VDR services, you need to look realistically at what the front-end price allows you to use and be aware of any overage fees hiding in the wings. Thankfully, there are fair pricing models out there to choose from. Choosing a pricing model that’s right for your project and putting best practices in place can keep your usage in check and optimize or avoid overages.
For more on Firmex virtual data rooms, subscriptions and pricing, visit our website.
