Guide To Tiered Pricing Strategy: Is It Good For SaaS?

Tiered pricing is achieved by delivering several versions of your service at different price points, hence assisting in the growth of your sales funnel and business. You may achieve this by differentiating your service by adding features, perks, or traits.

Your users will have the impression that they are getting a better product without spending more for the best version of the product that accomplishes the same purpose. They believe they received good value by not purchasing the cheapest one. As a consequence, your SaaS business’s revenue will grow with expansion MRR.

This article will help you better understand this strategy.

What is Tiered Pricing Strategy?

Tiered pricing is a strategy through which merchants divide the price of their product or service to fit the needs of their various target groups. By responding to varied demand rates and pricing points, you may appeal to a bigger and more diversified customer base by optimizing and changing up your offering between segments.

Tiered pricing strategies can help consumers save money on large-quantity purchases while also allowing them to scale up or down based on their needs. With a tiered pricing strategy, company owners have more opportunities to upsell because the cost per unit or cost per feature falls as the client purchases more.

Advantages of Tiered Pricing Strategy

The advantages of a tiered pricing strategy are:

• Reaching a larger audience
• Improving customer experience
• Greater upsell potential
• Increasing conversion rates

Reaching a larger audience

You have the ability to reach a larger audience. You can attract a larger range of consumers if you can create an offer for firms of all sizes, budgets, and objectives. 

Improving customer experience

You have the ability to improve your customer experience. Customers will be delighted if your prices and offerings are tailored to their needs. 

Upsell

You have to ability to earn upselling potential whether your company’s circumstances change and you need to upgrade to a higher tier, or the attractiveness of the discount leads to you purchasing a bigger amount in the initial sale. 

Maximizing conversion rates

You have the ability to increase your conversion rates. Your conversion rate will rise if your pricing plan can accommodate a broader range of client requests. 

Disadvantages of Tiered Pricing Strategy

Customers may find it challenging to choose between all of these options. As a result, it is critical that you clearly define the value and features included in each bundle to avoid introducing uncertainty and confusion into the sales process. 

The number of support tickets may grow. When introducing features, you must keep your consumers in mind. If you introduce too many features or those that need a high degree of assistance, you may be unable to match client expectations, which might be bad for your reputation and future sales.

Is Tiered Pricing Good for SaaS?

In the case of SaaS tiered pricing strategies, consumers pay more for greater capabilities, which may be related to the number of people who can use the program, the product’s features, or the volume of work that the software can perform. Each tier may be customized to fit the precise requirements of a single customer persona.

SaaS companies can get increased conversions and revenue as a consequence of better persona targeting. Upselling consumers becomes simple as well if your tiers are properly arranged. Customers can also easily upgrade to the next tier if they outgrow their current package.

Offering too many tiers, on the other hand, complicates your price tiers, confuses your clients, and reduces conversions.

If you are considering Competition-Based Pricing, check out our article!

What are the differences between Tiered Pricing Model and a Tiered Pricing Strategy?

The difference between a tiered pricing model and a tiered pricing strategy is their main focus.

As a pricing model, tiered pricing is an excellent approach to incentivize your consumers. It enables you to persuade your consumers to purchase more and qualify for discounts. A tiered pricing strategy, on the other hand, differs from the definition of a tiered pricing model. Tiered pricing, as a strategy, is more about tailoring your price to better match the demands of your clients.

What are the differences between Tiered and Volume Pricing?

Tiered pricing is a pricing approach used to set a price per unit within a range. Tiered pricing works by lowering the price per unit when each quantity within a “tier” is sold. Volume pricing, on the other hand, specifies a price for all units within a given range. Tiered pricing decreases as you “fill” each tier, but with volume pricing, if you reach a certain amount, all units will cost the lower price. Each technique may assist raise sales and moving things but in different ways.

Tiered pricing systems are beneficial because they allow customers to select items based on what they can afford. This can help increase sales by promoting the purchase of numerous goods while also assisting with inventory control methods. Customers who start with lower-cost packages may later be prepared to spend more.

Volume pricing is advantageous since it allows the user to purchase bigger quantities of a product at a reduced cost. Volume pricing may be beneficial in terms of selling goods out rapidly.

Measure Each Plan’s Revenue and More

No matter if you are using a tiered or usage-based pricing model, you can use HockeyStack to understand which pricing plan results in the highest expansion revenue, LTV, or customer support tickets, you can use HockeyStack.

HockeyStack is an end-to-end analytics tool for SaaS companies. With HockeyStack, you can track and analyze data from the product, sales, subscription revenue, and marketing in one tool and get access to hidden insights, such as the LTV of a piece of content, or the churn rate of each marketing channel along with users’ reasons for churn.

Conclusion

Many organizations in the SaaS world have three or more tiers to differentiate their price points. Companies frequently refer to their service tiers as “Basic, Standard, and Premium,” or “Entrepreneur, Small Business, and Enterprise-Level.” A tiered pricing approach is based on the premise that your rates and features should be suited to the varied demands and use cases of the clients you’re selling to.

Your value measure, which you use to establish your rates, might be quantitative, usage-based, feature-set-based, or dependent on how your clients view the product’s selected plan. The number of levels should allow you to capture the market by targeting multiple market groups while minimizing revenue loss.

Tiered pricing truly can assist you in reaching new audiences, gaining consumers, and increasing sales and profits. You must, however, provide value at each layer. Additionally, you must keep a close check on your sales in each tier to verify that they are suitably priced.