- Pricing is a bit of a black art.
And when it comes to SaaS businesses,
particularly B2B SaaS businesses
when you have to think about net dollar retention,
when you have to think about
the incredibly competitive landscape
that exists in SaaS today,
when you have to think about different market segments,
we think about all these things,
pricing is doubly so a black art
when it comes to SaaS businesses.
But I think it's gotten way too complicated.
And I think that there's a simpler way
to actually look at this.
So in this episode,
I'm gonna dig into the three principles
that you absolutely need to know
to actually establish my three tiered pricing model.
And for 80% of early stage SaaS businesses,
this is gonna drive growth for you.
Intro.
(upbeat music)
What's up everybody,
welcome to Unstoppable, I'm TK,
and on this channel,
I help SaaS founders like you
grow your SaaS businesses faster
with an unstoppable strategy.
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Now, if you're already part of my SaaS
go-to-market coaching program, my SaaS launch program,
if you are part of this community, welcome back.
It's seriously awesome to see you over here.
Seriously, thank you for coming back.
Now. I remember the first time
someone signed up for the $199 a month plan for ToutApp,
super early days.
Our normal price is $30 a month,
and we had this $199 price plan, we just had it there,
we didn't think anyone was gonna sign up,
it was so early.
And by the way, now, like by the time we sold the company
we were charging $125 per month per seat.
But you know, in the early days,
we had no idea what the value we were really delivering was.
So I remember the time
for the first time someone signed up for the $199 one,
we were like blown away.
We were looking up.
It's like, who is this person?
Is this someone's mom?
Is this a real person?
Is it a spam account?
It was a real customer, it was a legit account,
and they were upgrading on their own
and they hadn't talked to anyone, it was incredible.
That's when we also realized
that we were probably undercharging for the product
and we were also entering
into new segments of the market
that we needed to serve in a bigger way.
Now, through the years,
over 10 years of being in SaaS,
multiple companies, multiple exits,
I've learned the ins and outs of SaaS pricing
and it's an ever-growing feel.
In prior episodes,
we've talked about the core principles around pricing.
We've talked about value based pricing,
and if you missed those episodes, these two right here,
you don't have to go right now, I'll link to them below.
But in this episode,
I wanted to just teach you my three tiered system.
This is a three tiered system
that I think 80% of early-stage SaaS businesses
can just adopt,
and they will optimize their pricing
and they don't have to think as much about it,
they don't have to over it,
and they can actually drive growth.
If you're excited to dig in the three principles
in my three tier system,
go ahead and smash that like button
for the YouTube algorithm
and really likes it when you do that.
I love it when you do that,
my team loves you when you do that,
and let's go into principle number one.
Principle number one,
is a lot of times people actually
over-complicate the number of plans they have
and how to tier them.
I think that you actually wanna just have three plans
based on customer maturity.
Customer maturity is important.
Your SaaS product is essentially bringing
some sort of a transformation, right?
And in that transformation,
in this world transformation they're going through,
there's always gonna be a different level of maturity
for that customer.
If they're in the very beginning stages
of this transformation, their maturity is gonna be low.
So they're essentially a beginner, right?
They're just starting to figure this out.
If they are a mature business
and they're well into this transformation
and they're now jumping onto your platform,
then they're gonna go into the intermediate plan
and the intermediate plan will have some mix
of the basic features
and the beginners of one,
and maybe some of the more advanced features
to actually move them along in their journey.
And then there's always gonna be
the super advanced customer.
This is that $199 plan we had in the early days.
The super advanced customer
is gonna be farther along in their maturity,
they're gonna want some of the more experimental features,
maybe they'll want team features,
maybe they'll want advanced reporting,
and they'll have that advanced plan.
If you can sit down
and start to think about your customer maturity curve,
meaning, what does it look like
when they're just starting out on the transformation?
What does it look like when they're halfway through?
And what does it look like
when they're the best in the business,
in terms of leading that transformation into others,
you'll always come down with some sort of a beginner,
intermediate and advanced tier.
And you don't need to overthink this,
you just need to create three pricing tiers
that actually match to that.
And what this will naturally do,
is it'll help the super early people
just get in really easily.
It'll help the majority of the people
that are in this transformation already look at it
and say, yup they've got all the things we need,
we'll go for that intermediate.
And for the small percent of people
that are really farther along in this transformation,
they look in advance
and not disqualify as being too basic,
they'll say, oh cool, they have the advanced thing,
they have some of the key features
and that means they're probably doing more
than they'll actually go into the advanced.
So principle number one
is just map out your customer maturity curve
and just tear it across three buckets,
beginner, intermediate and advanced.
And if you do that,
then you've solved more than half of your problems.
Once you've done that, the second principle
that you need to understand and embrace
in this three tiered system,
is you need to actually embrace price anchoring.
Now there's a reason why there's three tiers.
There's a reason why there's three things
in a lot of things and like three is an important number
for humans and it shows up everywhere.
But particularly here,
price anchoring is super, super powerful.
What is price anchoring?
Let's just say that I'm selling you
a piece of gum.
And I tell you, "Hey, the piece of gum costs a dollar."
Now in your head,
a dollar could be like amazing deal for you,
it could be a no deal for you,
because you're not comparing it to anything
and I'm just giving you one number.
You're essentially saying,
deciding on what that means for you,
what a dollar means for you.
Now, let's just say you approach me for a piece of gum
and I say, "Hey, listen,
you can actually go for my normal gum
and that's a dollar,
you can go for my slightly sweeter gum
and that's a $1.25
or you can go for my premium gum and that's $3."
And all of a sudden,
you're not just thinking about the one number I gave you,
you're asking yourself, "Am I a $3 gum kind of person?
Or do I just want the basic gum,
and I'll just take it for a dollar?"
Now you see how now
you're not looking at a dollar as just a dollar,
you're automatically been anchored
into thinking about $3, $1.25 or $1.50 and a dollar.
And all of a sudden that dollar
seems a lot cheaper than that $3.
And I could apply the same idea around anchoring,
where I'm anchoring you at around price
and say something and say,
"Hey look, do you want my basic gum that costs $3?
I have a slightly sweeter gum that's a $6,
and I have this premium gum
that actually gives you a lifetime subscription for $10."
Same idea.
All of a sudden the $6 doesn't seem so bad
even though I started at $3.
This is what's anchoring.
And this is why there's always three ideas,
three plans that you see so many threes,
and there's one that kinda sticks out in the middle.
And all of a sudden the middle seems reasonable
because it's not as crazy as this $10 or $199 plan,
it's also not the basic thing at $30, you're in the middle.
There this $49 plan or $59 plan
or whatever number you choose.
So principle number two,
is when you're following these three tiers
along the customer journey,
which is principle number one, principle two,
is to embrace price anchoring.
Remember that $199 plan we talked about?
Well, the $199 plan was this crazy advanced plan
we made up and it was this price anchoring.
We started at 199, our basic was 39,
and we wanted everyone to just go for the $49 plan.
And the reason we did that, we said,
well 199 is crazy,
but we've anchored there.
$30 is just a basic to get started,
and 49 seems reasonable and a steal
because we included some important features
that we knew majority of people would want.
We wanted majority of people in the intermediate stage,
and that's the power of price anchoring.
All of a sudden, they're not just thinking about
what does a dollar mean to me?
But they're saying, well
$6 is better than paying $10 for gum.
And I don't want the cheap $3 one.
Let's go for the six, I'd like sweeter.
All of a sudden the human brain
which is billions of years old, it just adapts very quickly.
Are you guys starting to see the power in this?
So principle number one,
is just map out the customer journey,
and I have three plans.
Principle number two is embrace price anchoring.
Now I do have a principle number three,
but let me just pause here
before I go to this principle number three.
If you're starting to see the power in this
and that you don't need to over-complicate pricing,
you can just go with three tiers,
you can map it along your customer journey,
and when you do this,
A, you're embracing price anchoring,
you're using the right human motivation factors
to actually get them to take action.
And you're also baking it in
so that people can start in one of these tiers
and there was always another tier to go into.
If you starting to see the power in this,
where eventually people will keep using, keep using
and eventually upsell in your product to the highest plan,
you starting to see the power
in how all these come together
in this three tier system,
can I just get a yes in the comments below
also smash that like button for the YouTube algorithm
and really likes it when you do that,
I love it when you do that,
my team loves you for it when you do that as well.
So be sure to do that.
Also, if you are trying to figure out your pricing strategy,
and it's hard to figure out your overall strategy
around how to grow your SaaS business,
be sure to check out my five point
SaaS growth strategy guide,
but I'll tell you about it
at the end of this video, we have one more principle.
The one more principle you should apply
to your three tiers pricing strategy,
is when you show your three plans in your pricing page,
you should also have a bottom area where it says,
hey, enterprise, talk to sales.
This is super important.
Now, whether your product led growth or sales driven growth,
you should always have one plan for sure
where it's like, hey, do you have questions?
Are you an enterprise customer?
Talk to sales.
Because there's gonna be a certain set of buyers
no matter what you do, how affordable the pricing is,
how easy it is the practice to get started,
they're just not gonna sign up for the product,
they'll want to talk to a human,
they're those kinds of buyers.
There's also crazy people
that just wanna talk to humans
and have nothing better to do,
which is why it's super important
for principle number three.
It's just have something in the bottom that says,
hey are you an enterprise customer?
Click here to talk to sales.
And you take them to a forum
where you ask for specific information,
you ask for a work email, company size, actual company,
and that way you can actually decide
whether to talk to them or not,
And that way you filter out the crazies.
This is super important because on one hand,
you're gonna get a lot of people that are tire kickers,
so they'll get into the product and start trying it out.
Once they get in and start trying it out,
if you're in the early stages,
I always recommend
that you just reach out to them proactively
and offer an onboarding call
so you can actually make sure they're set up for success,
and you also learn a lot more about your target customers.
But also at the same time,
you should also have a talk to sales button,
identifying enterprise customers.
This will signal that hey,
you understand that enterprise customers
have a different need,
you also set expectations that look we'll talk to you
if you are an enterprise customer
and not just a random customer.
And you also can actually signal that,
hey we can meet your needs
and you'll learn a ton from these calls as well.
So to summarize my three tiered pricing strategy,
principle number one, actually just map it
to your customer maturity journey,
have a beginner, intermediate and advanced plan.
You don't have to call it beginner, intermediate, advanced,
you can call it whatever you want
but map it that way.
You should embrace price anchoring.
And that will actually help you drive more conversions.
And also, lastly,
always have an enterprise talk to sales button
because inevitably people will be signing up
for that higher tier plan,
people will not engage with you
if they they can't talk to a human being,
so that's super important.
When you employ these three things,
you will be able to grow faster,
because you will have a sound pricing strategy
that optimizes for a lot of core principles that exist
because of SaaS businesses and the metrics that matter.
Now, I have two things for you as we wrap up.
Number one, if you wanna dig more
into the underlying principles
that drive SaaS pricing,
I have two videos on this.
One is around value based pricing,
and the other is around pricing strategy.
You can check out both of these two videos,
you don't have to go right now,
and you can just follow the link below, i'll link to them.
The other thing I have for you
is you're likely watching this video
because you're building out a SaaS business.
And when it comes to building out a SaaS business
you need to have a proper market strategy,
a product strategy,
and a go-to-market strategy.
There's three key pillars around this.
This is why I created my SaaS growth strategy guide.
It's completely free,
and when you download it,
you get way more details
on how to craft a proper strategy to grow
including your pricing strategy.
It links to a bunch of my other YouTube videos
that have the best performing,
but it's contextualized
around the key pieces of strategy you need to grade.
It's completely free,
you should totally download it.
If you're a SaaS founder looking to grow your SaaS business,
all you need to do
is just go to getunstoppable.com/strategy
and you can download it, getunstoppable.com/strategy.
Lastly, if you got value from this video,
be sure to smash that like button for the YouTube algorithm,
loves it when you do that, I love it when you to do that.
You should hit the subscribe button and that bell icon
if you haven't already, 'cause I drop an episode like this
with actionable strategies, two to three times a week.
And lastly, also if there's another founder
that can get value from things that I've talked about here,
please share this video with them,
we wanna impact as many SaaS founders as possible.
Lastly remember, everyone needs a strategy
for their life and their business,
when you are with us, yours is gonna be unstoppable.
I'm TK, I'll see the next episode.
(gentle music)