Getting Your SaaS Pricing Model Right

I flew home from Melbourne last week. For the first (and last) time in my life, I blew some frequent flyer points on a first class upgrade.

And the guy in the row next to me was talking on his iPhone. Just chatting away, while the flight attendants – 3 of them – stood by, waiting for him to finish his phone call, at his leisure so that we could take off.

They kept whispering that they’d like for him to turn his phone off.

And he ignored them every time.

Meanwhile, the rest of the plane sat, and waited for him to be ready. They’d already been scolded for talking on their phones.

He was in first class, and he was therefore entitled to do that. Apparently.

It piqued my interest. I paid a little more attention throughout the flight. When the food came round, we were served the same thing as the rest of the plane. Just on a plate instead of in a box. When the drinks came round, we were offered the same drinks. Just in a glass, not a plastic cup.

This is a classic example of removing value to build a pricing model.

When you have a product that you want to sell, you’re often encouraged to sell it in tiers, as it encourages people to buy and provides varying levels of access.

There are 2 ways that people generally approach that.

#1. Removing Value.

Some folks approach their different tiers by designing the best tier first. The premium product. The big ticket subscription. This pricing tier is the most profitable for the business, and it’s what they ultimately want to push people towards.

They’ll throw in everything people need to have an amazing experience using their product, and they’ll make sure that it’s going to blow their minds. Next, they approach the other pricing tiers.

But they’ve already given away everything truly valuable, so they can’t provide it to the folks paying less. How do they build and define those pricing tiers? They do it by stripping away value from the lower tiers, removing elements of what made the top tier so valuable in the first place, and making the lower tiers feel as cheap as they are.

That’s exactly what airlines do. With plastic cups, rules, cardboard boxes and so on, they’re stripping out value to build a pricing tier. Feels pretty crummy when you’re a consumer, right?

So what’s the alternative?

#2. Adding Value.

This is what I believe in, and it’s what I do in each of my businesses. I start by designing the most affordable tier of my product or service first. And I do everything I can to make sure that the needs of the folks who pay for that will not only be met, they will be exceeded. I want the first tier that I build to be everything people need, and give them an incredible experience.

I then build every single tier on top of that by adding even more value instead of taking value away.

I will find new additions and new ideas and use them to make the upper packages a whole new world of value, that doesn’t cheapen or damage the quality of the lower tiers of pricing.

That way, I’m building a pricing model that will never make anyone feel forgotten or excluded, and that will encourage folks to view the different tiers as aspirational.

Your Pricing Model Is Important.

It matters beyond being innovative and getting people to pay, because it’s actually a part of your branding and it directly impacts the way people see you.

If they think you’re only giving a damn about the people on the top rung of your pricing, the top tier, they’re going to see you as elitist. If they think your pricing is designed around real value and is designed to be accessible, they’re likely to have a much higher opinion of you.

[This post by Jon Westenberg first appeared on Medium and has been reproduced with permission.]

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.