Pratikkumar P. Gaikwad | 10 min read | June 25, 2020
There are a host of methods to price your service when it comes to selling.
You could adopt the one-price model simply fixed packaged and make it really simple …
Or you could offer your customers 6 or more options and simply confuse the hell out of them.
1. The Problem with a Single Price
Although there’s an urge to simplify the promotional plan and come up with a flat product, you ‘re just causing further down the road issues.
A single price will make prospects think they either have to accept your pricing and the features that come with it or go somewhere else.
That’s just not nice!
“What if I need those five features, so I don’t care about the other two?” “I appreciate their core features so much, but the rest is redundant for my current market process.”
Do you get what I mean?
There’s a temptation for your prospect to step away and match the product at a cheaper rate if you’re only selling one item.
What we want to do is provide the consumer with products and options.
That way, it starts being a question of how the client is paying you nor how much money the client ends up offering.
A big company with a big budget can definitely pay more and will need all of your features.
But a small startup might have a really tight budget, and can only afford your Saas product ‘s core feature.
By offering only one price, 66 percent or more of your potential customers are actually isolated!
2. Why give options to your clients?
While I’m confident that your Saas company is completely amazing and revolutionary, there’s one thing that’s just as important to give your consumer.
You have to show them the choices.
People love to control and want control. They want to be able to pick out the features that matter to them and drop the rest away.
Giving options is actually an awesome and safe way to make sure that your product sells and delivers cash flow to your business … and dramatically increases your business’ odds of getting bigger sales.
Options Let You Show Your Premium Features
Many online customers (like me) will have no idea as to which features are important and which are premium add-ons which make their lives 100X easier.
Yesware, an email marketing service, is doing this pretty well.
They are using the strategy of 3 tier pricing.
By giving three options in each subsequent level with clear descriptions of the additional features …
Yesware has specifically distinguished its main features from its luxury features and is appealing to three separate classes of customers.
By offering your clients choices, you will easily help them determine if their company will benefit from getting the premium apps.
Having too many options, however, is not good
While it is important to capture additional sales by having different tiered pricing, having one like Microsoft’s is counterproductive and downright confusing.
It’s possible to get confused with just one look and forget that there isn’t really any detail about the various stages.
Does Office 365 Home and Personal still differ?
What features make $300 higher for Office Professional than Home version?
Too confusing, too many questions left unanswered = clicks away from the customers.
So if only one alternative isn’t suitable when my bid has so many choices leading to uncertainty
How many will be ideal?
The answer is Three.
3. Why The 3 Tier Pricing Is For You
Let’s go through the workings of the 3-tier pricing.
In reality, the concept is pretty easy, you ‘re giving your customers three choices from your stuff.
Many successful companies (not just Saas) use this 3-tier pricing strategy to add value to their customers and, most importantly, clarity.
When your customer arrives and is interested in your pricing page, you need to show them what they can get at different prices.
The Basic Package:
Gives the core functions of your service to your customers. It will solve the principal challenge or problem they face in their business.
The Standard Package:
This includes everything in the basic package but also more features such as productivity tools that increase overall benefits and help your customers save time or money in the long run.
This will become your most famous alternative and I’ll reveal why in a little bit.
The Premium Package:
It is what the system can deliver at its full efficiency. Although this option is not being opted for by many consumers, it gives you the highest return per unit sold.
As we discovered earlier, the advantages of providing options allowing you to capture more revenue by giving your customers a choice when buying.
But maybe the most important feature of a 3-tier pricing approach is the opportunity to directly monitor the alternative that more of the clients are purchasing.
But how does it work?
Is it really feasible?
4. Three Tier Pricing Allows You To Establish Value & Control The Sale
The book, Priceless: The Myth of Fair Value, underlines how a simple example of selling beer to 100 customers is doing this.
A restaurant merely sold two styles of beers. A cheap beer $1.80 and a luxury beer $2.50.
The premium beer went to 80 percent of the customers.
Which netted $236 for the restaurant.
The manager has added one alternative even cheaper:
The restaurant now has an even cheaper bargain option which costs just $1.60.
Currently, this upsets the revenue quite drastically with 80 percent of the consumers purchasing the former $1.80 baseline beer and the other 20 percent ordered the $2.50 premium beer.
This meant sales fell to $194.
The boss replaced the $1.60 bottle with an alternative of $3.40 Ultra-Premium:
This time the $2.50 premium beer was purchased by 85 percent of men.
At $3.40, 10 percent consumed the ultra-premium brew and the other 5 percent drank the cheap $1.80 bottle.
Net revenue earned $255.50.
Now if you realize that the only thing changed was to introduce a higher-priced option than a cheaper one.
What Should We Learn From This?
The secret to takeaway is to turn off our deals and add a higher-priced alternative …
We can steer our clients towards the package we want.
The middle package i.e ‘Standard’.
It is particularly true in a three-tier pricing approach and the reason that so many businesses chose its pricing paradigm to be implemented.
The middle alternative will close more transactions when offered three options, which will assess the cash flow & income.
Hence refining the middle bundle to optimize the profits makes sense.
5. Two Ways To Price Your Services Using The 3 Tier Pricing Model
While the model of a three-tier pricing strategy can be used for different businesses beyond Saas products such as consulting, web design, and food…
It’s actually fairly straightforward when you apply it to your business in Saas.
One Plan Per Persona
One of the most common pricing models is for the consumer identity to suit the product or kit.
We ‘re not just talking about a vague description of your end buyer when we’re talking about customer persona …
Yet the customer’s thorough overview that involves the pressure points and obstacles he and his immediate needs are experiencing.
Let’s presume you market apps for profitability.
You should build a premium-priced package that suits the big business.
A strategy that places more emphasis on connectivity tools that avoid errors and have valuable alignment with current infrastructure.
The pricing page for Hubspot’s marketing tools does this well.
They isolate their third parties distinctly and list all the characteristics of each program to illustrate the variations with each company persona.
Cleverly, Hubspot also emphasizes the middle alternative to direct their prospects forward in selecting the middle choice, after all, it’s the ‘most common option’!
Now, when creating your three levels, you need to make sure that each option is clearly defined between the levels and has distinctive offers.
The last thing you want to do is make the same person’s customers pick from the options.
With every program Hubspot explicitly describes the consumer persona:
An entry-level marketer does not have more than 100 clients and is unlikely to need any marketing automation.
Similarly, a big company with 10,000 or so connections should be meticulous about measuring and recording the various metrics, and would thus be paid even more.
The reporting feature turns into a premium add-on for their corporate client persona.
Takeaway: A strong customer persona will lead to tiered plans that are robust and clearly defined so start from that.
Plans That Scale With Usage / Users
The common approach used for pricing is to build plans according to the metric value.
Which is the metric value, now?
This is actually the service unit where the customer pays for.
For example, if I go into a spa they will sell me products depending on the metric value.
“Five hours, at $800”
“10 $1200′′ sessions
For every additional unit interval purchased, there is a discount.
This is especially effective in ensuring that you get a share of a portion of the improved demand as a client uses the product more and gets more money.
This offers the company a better sense of worth and contributes to improved purchases:
Why not buy $2,500 for 5,000 credits than $1,000 for $1000? It allows you to pre-sell more of your software service (which is virtually unlimited) and to bring in cash even if your customer doesn’t complete its allocated usage.
It’s about offering gym memberships that are unrestricted, where you get paid even though they don’t show up.
It is accomplished well by LimeLeads, a market prospecting company.
By setting the price per contact (or lead) clearly, they effectively lure their customers to select the higher paid plans to enjoy greater discounts.
They also give their customers a sense of the right buyer for the size of their unique business by clearly marking the 3 plans, startups, business, and enterprise.
It is always better to sell more when selling based on value metrics although the discounts may be steeper.
But please make sure the math works out, your business will probably have variable costs which are also linked to the metric value!
6. Ready to give a shot on 3 Tier Pricing?
If you are developing a new Saas product and want to check the price of the MVP (minimum viable product)…
Or you’re trying to update your product model to gain more sales and reach new categories of consumers…
Give a shot to the 3-tier price approach, it’s proven to work and can even monitor the cost.
Wondering if volume pricing could be a safer (and simpler) form of pricing for you?
Read our fast Tiered Pricing vs Volume Pricing guide to find out which one to select for your company!