Saas pricing models are a lot like pancakes.
A few days ago I woke up early and made my wife breakfast…
Great thing about Pancakes?
I can make as many as I want and she can eat as many as she’d like.
Well, a solid SaaS pricing strategy works exactly like that delicious stack of pancakes…
- Pricing methods have different tiers, just like pancakes
- They adjust depending on the client, just like pancakes.
- They have bonuses and up-sells, just like syrup and butter on top.
Most startups struggle to develop a solid pricing model (or second guess it constantly)
#1 Reason for this: Not starting from a pre-determined goal.
Let me explain…
Here’s the question most people start with: “How much would [Insert company name] be willing to pay?”
Just two (2) problems:
- People DO NOT keep specific price points in their heads.
- They DO keep a range they are comfortable with if the value is good enough…this is called elasticity.
So, instead of asking what people might be willing to pay, ask:
At $[Insert Price] how many sells could I get?
If you’re raising support or managing fundraising efforts for a charity it may look more like this:
At $[Insert Suggestion] how many donations are we getting?
Next, identify how many ‘sells’ you need to succeed.
Step #1: Set a goal
Let’s say our goal is to make $100,000
Price points: (Beta: $49), $97, $197, $397
Our course has a payment plan (4 months), but for simplicity, we’ll ignore that.
It’s also a digital product, with limited costs.
(Aside: If you sell physical products, you’ll want to take the additional step of identifying your Margins first. So a $49 book might cost $9 to produce, and $5 to ship. That’s $35. Plug in your “margin” number below)
Step #2: Figure out how many sells you need
Sells needed at price points:
- $49: 2,040 sells
- $97: 1,030 sells
- $197: 507 sells
- $397: 252 sells
Which is easier selling a $49 product, or a $397 product.
Well, it depends on the person buying!
We’re selling (relatively) the same product at each of these price points, but are obviously adding in a ton of additional value in the higher tiered plans.
Which is easier?
To sell 2,040 of something?
Or 252 of something.
Obviously, the lower number is MUCH MORE achievable.
The #1 most important thing to remember is that the number you need to sell remains the same.
Here’s what I mean…
Regardless of how many leads you need (whether that’s 100 or 1,000) you need the same amount of sells (e.g. you need to sell x quantity)
So for the example above, you need to sell 252 products at $397 to make $100,000.
That’s the starting point.
From there you can develop strategies to gather interested people, and decide on the best way to see if they’re interested.
Step 3: Decide how many leads you need
Next thing we did was take those numbers and decide how many leads we would need.
During testing, 10% of people bought the product.
So, how many people do we need to reach out to at each price point (assuming 10% will buy)?
(That means we need 10 times as many leads if 1 out of 10 will buy.)
- $49: 2,040 sells = 20,400 leads
- $97: 1,030 sells = 10,300 leads
- $197: 507 sells = 5,070 leads
- $397: 252 sells = 2,520 leads
Again, this is just an example.
A higher percentage of people will buy the lower priced item.
And a lower percentage of people will buy the higher priced item.
In general, about 50% of leads should buy your cheapest option, and the rest should invest in higher options
(Assuming you provide excellent value)
Next we need to take it a step further and break things down to bite-sized chunks…
Step #4: Break it down into bite-sized chunks
Big numbers, like 20,400 leads would scare almost anyone away…
But 425 leads per week?
Much easier to swallow.
- $49: 2,040 sells = 20,400 leads. That’s 1,700/mo. or 425 leads per week
- $97: 1,030 sells = 10,300 leads. That’s 858/mo. or 215 leads per week
- $197: 507 sells = 5,070 leads. That’s 422/mo. or 106 leads per week
- $397: 252 sells = 2,520 leads. That’s 210/mo. or 53 leads per week
Step #5: Let them eat
Now you know how many leads you need at each price point.
Next up, is letting them choose how many pancakes they want to eat.
In other words, which pricing tier they want to purchase.
Just because you have a lead that is willing to pay $49 doesn’t mean they aren’t willing to pay $97 for a little more value.
So, give them options.
Instead of asking everyone to purchase at (1) one price point, ask them to choose from (3) three different options.
Master | Advanced | Starter
This provides them with at least 3 different value levels to choose from.
At this point the only thing left to do is ensure that you are providing 10x the value of what you are asking. And it doesn’t have to necessarily be something specifically related to the product or service you are selling. Some people just want a more personalized experience or higher level of service.
For instance, you could add in things that take more time on your part, to help customers out like:
- 1-on-1 coaching
- Exclusive access to a Private Facebook Group
- Concierge Onboarding
- Personal access to the CEO’s cell phone
These things are time intensive and not-scalable, so need to be guarded, and the higher paying tiers allow people to choose these services if they’d like.
Similarly, people can grab the lower tiered packages and get the essentials, without all the bells and whistles.
Questions? Did I miss anything? Leave it in the comments below…