Have you ever heard a customer say, “I would have paid far more for a product like yours“.
Turns out one price doesn’t fit all. So how then, do you cater to different tiers of paying customers and facilitate SaaS success?
Pricing based on segmentation is your answer.
What is scaled pricing?
Scaled pricing refers to the segmentation of your product to suit different target markets. You’ve definitely seen it in action before, typically presented as a basic, standard and premium version of your product. In this way, scaled pricing allows potential customers to choose the product or service tier that better fits their requirements.
This pricing model allows smaller customers to access the functions they require, while your largest customers can experience the full suite of SaaS products you offer. Tiered pricing helps your business access a wider range of customers, and stop leaving money on the table.
Using expert insights to understand audience segmentation and how to tier your products, you can cater to a wider market without compromising on quality. The overall result for your business is a larger customer base, reduced customer churn and more retained revenue.
While price scaling does involve discounted services as you move through the tiers, unlike volume pricing, it shouldn’t affect your revenue growth. Here’s why.
Scaled pricing vs volume pricing
It’s easy to get confused between scaled pricing and volume pricing; the two have some similar features. For example, both are based inherently on quantity discount.
However, there’s one key reason why businesses use scaled pricing, and why it may significantly outweigh volume pricing.
Volume pricing works by discounting every unit when a threshold of usage is reached. Effectively, larger clients get the same product for a better, discounted price. But this often leads to a less profitable company as you scale. As your client’s usage increase, the discounts promised could hinder you from increasing the pricing.
On the other hand, once a threshold is reached with pricing scales, only products in the new tier are discounted. It means that your existing customers experience a great deal on new services that would have a higher price ticket attached. Alongside offering more value and services to your customer, your organization won’t be hit by a drop in profit margins on units in lower tiers.
Examples of SaaS companies using scaled pricing
There are a number of different ways that SaaS companies can work with scaled pricing. Your tiers could be based on:
- User count
- Product usage
- Feature list
Here are some SaaS businesses that have their pricing model designed advantageously.
Trailsuite
Trail is a work management platform for hospitality organizations. Their pricing model offers a solo, team and standard options; with more data and user capabilities as customers scale. Founder & Managing Director Joe Cripps credits the need to “increase recurring revenue” for the company’s recent growth.
FitMyLife Health Analytics
FitMyLife is a data-centric health platform centred around offering highly personalised advice. With a holistic, data-led model, the app offers an easy way to align your nutrition and training to reach your goals in your own way. Their subscription plans range from basic to premium, with customized workout and nutrition plans, for example, only offered in the higher tier.
Benefits of a sliding pricing scale
It’s clear that sliding scale pricing models are a good way to grow revenue without impacting profit. But what are the other benefits?
Create a new revenue channel
Customers who previously considered your product or services “too cheap” will now see you as a better fit. With customization being one of the top things customers look for in their subscription services, there is a demand. Clients are out there, they’re looking and they can afford it. By offering scaled pricing, you create a new channel of revenue and appeal to more customer types.
Increase customer lifetime value
By allowing customers to both level up and downgrade as and when needed, churn is reduced. Users are more likely to stay with your company for longer, which extends their subscription and generates a higher customer lifetime value. The positive relationship between these two metrics is the key to your business growth.
Easier conversion for sales teams
Do you know about the Coca-Cola vs Pepsi conundrum?
Sales in both Coca-Cola and Pepsi vending machines were in decline all over the world. The companies tried tweaking branding, sales copy, even the position of the vending machines. Nothing seemed to help.
The solution?
Coca-Cola and Pepsi vending machines were placed directly next to each other in an office. Sales increased by more than 15%. Previously, the customers had the choice between yes or no to buying a drink. Now, the answers changed to Coca-Cola or Pepsi; the purchase decision was already made.
In the same way, upselling becomes much easier with a scaled pricing model – since multiple tiers are widely available. The question changes from “do I purchase?” to “which tier do I purchase?“
Negative revenue churn
Negative revenue churn refers to new revenue from existing customers being more than the revenue lost through cancellations. Every company strives for negative revenue churn since it keeps your revenue secure and growth sustainable.
Scaling pricing helps facilitate negative revenue churn since it offers a fast path to upgrades. Without friction, customers are more likely to scale up when they require. Of course, this offsets revenue lost to cancelled subscriptions.
At the end of the day, prices can be as personal as a fingerprint. Help your business remove obstructions to bringing on more customers by opting for scaling prices. And if you’re looking to access and utilize more resources to further accelerate your growth, Fundsquire can help. Chat with us today to find the best fit for your funding needs.
