business-plan, saas, revenueI have created a list of the pros to Tiered Pricing v.s. Single Pricing for monetizing an SaaS to determine which method seems best. It seems like a majority of companies I have dealt with go with a Tiered Pricing approach. Sometimes the single priced plan seems like it would make things simpler. I am wondering if their is a science behind it?
pros of a tiered pricing plan
pros of a single priced plan
Any thoughts would be cool!
With a tier pricing model you essentially segmenting your market based of features, needs, etc. Many SaaS companies use tier because they know that many parts of their market need different solutions. A great example is a web hosting company. Many just need simple hosting for one site. others need a more enterprise solutions. If you offer one simple price you leave half of your potential market looking for another solution.
If you are looking to start a company and you want to explore which model works for you, then go do customer discovery. You may find that your market is more segmented than you think and that a tier pricing may capture more of said market.
If you think about this as a classical pricing exercise, tiered pricing is a strategy to harvest value for different customer groups characterised by usage profiles.
Simplifying and exaggerating to make the point, suppose pricing of $1 per occasion of use was a good value trade for moderate users. But it’s not a good representation of value generated for the customer group you want to serve who will be making hundreds of uses each month. So you decide to offer the option of $50 per month, with 100 uses included, any more charged at 40¢.
There’s more to classical pricing than that, but in the startup case, it’s pretty rare that what you’re concerned about is price as a source of competitive advantage through effective value harvesting. Far more often, the question is, how do I present pricing (if at all) in a way that will maximise customer acquisition?
The great disadvantage of tiered pricing is that it introduces the possibility of the customer making a wrong decision ahead of the purchase decision. This is a factor people seriously underestimate. So in the absence of specifics, I would generally avoid presenting choices like this while you’re working on product/market fit. Better to over-deliver on value than delay or miss the sale.
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