#65: How To Structure And Present SaaS Pricing

#65: How To Structure And Present SaaS Pricing

Read Time: 3 min

Today, I’ll show you how to think about structuring and presenting prices to potential customers.

The idea here is to think about how most people buy products and to set up your pricing in a way that reflects it. There are three primary things consumers are looking for when buying. (1) Value. (2) Options. (3) Cost.

In this issue, I will break down how to convey this in a repeatable way with more predictable results.

People don’t buy the cheapest product. They buy the one with the most perceived value.

~ Robert Cialdini

There are 4 areas you want to think about when structuring and presenting price. Let’s unpack each.

1. Features

2. Tiers

3. Pricing

4. Presentation

Features
This is where you present the value of what each tier/plan will encompass. You want to clearly delineate the features to provide transparency and allow customers to make informed decisions based on their needs and budget. For example, a basic tier might include essential features such as access to the core product, basic customer support, and limited usage limits. As you move up to higher tiers, your features should scale accordingly, offering benefits like premium customer support, advanced analytics, customization options, higher usage ceilings, etc. This progression not only justifies the price difference between tiers but also demonstrates the added value customers will receive at each level. A good rule of thumb is your basic (first) plan should not have what most customers will need. The idea is to drive them to the middle plan, where 99% of the features will encompass the workflow they're looking to optimize. The premium plan is for customers who want the extra bells and whistles.

Tiers
The idea behind tiers is that people like variety, options, and choices. You structure the value in tiers so customers can see what they’re getting and match their needs with price and value. As explained earlier, consumers are conditioned to buy products in a specific way; anytime you deviate away from that conditioning, it can create bottlenecks or delays in your sales cycle. The ideal amount of tiers/plans is three. You can name them (standard, professional, premium) or whatever floats your boat. If you’d like to add an enterprise plan where the call to action is “contact us,” I’m ok with that, but I don’t think it’s necessary. Three plans, in my experience, is the perfect number.

Pricing
Pricing your SaaS is the tough part. You want to consider a couple of things. (1) is to obviously look at competitor pricing and be in the same neighborhood. (2) is to leverage psychological pricing strategies such as what I call “charm pricing” (e.g., $99 instead of $100) to make your prices seem more attractive, use price anchoring by placing a higher-priced tier next to a lower-priced one to enhance its appeal, and employ decoy pricing with a strategically placed middle tier to guide customers toward your most profitable plan. In other words, the goal is to be competitively priced vs your competitors, provide way more value in the features section, and drive them toward the middle plan. There is a lot of nuance in pricing, and it’s a process of testing.

Presentation 
How you present pricing is equally as important as the pricing itself. It needs to be done strategically. For example, you want to go through each feature and tier and make a recommendation. Watch and listen to my example here. 

Usage Based Pricing
Many readers of this newsletter are selling technical products, such as dev tools, that incorporate a usage-based pricing model, which can be tricky to convey. The idea is to set up tiers, features, and pricing in the same way as mentioned above. The only difference is that you would put ceilings in each tier with usage. For example, you could add something like 100 API calls/month and $0.10 per additional API call to each tier.

Below is an example of how to structure features, tiers, and pricing.

That’s it for today!

See you all next week.



Darren

P.S. If finding PMF and scaling to $1M in ARR through founder-led sales is on your radar, book a call with me here

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