Last month, I talked about the advantages of packaging your services, and how the practice could earn you more money by making purchases easier for you and your clients.
Today, I want to build on that by telling you one of the best ways to price your packaged services to get the most out of them and boost the amount customers are willing to pay.
The Idea Behind Pricing Tiers
If you are selling multiple products, services or packages that offer the same general benefits, but at different levels of quality or provision, then it’s usually best to price your products in tiers. Each tier represents a distinctly different level of payment and provision, from basic to complete, premium or luxury, depending on what you are selling.
A good way to think of this is to imagine classes on a train or plane. Everyone is taking the same journey, but those in first-class pay vastly more for better seats, better food, more space and perhaps a glass of Champagne.
What is more, and what is useful for business people like you and me; people in first-class or any other premium business service, are usually willing to pay much more than the cost that the extra services like Champagne and comfy seats cost to deliver. Carefully designed tiered pricing systems can add in a whole new level of profit from customers willing to pay more for better service. It can also convince less wealthy customers to increase their spending.
The Magic Number
Three, as they say, is the magic number, and tier-pricing is no different. Offering customers three tiers of pricing works incredibly well. For absolute best effect, your three tiers should be priced roughly according to these guidelines:
- Value – This should be the absolute minimum the customer needs or wants from your service, with enough cost added on to make a solid, but not lavish, profit.
- Standard – This should be aimed at the average customer. Giving them what they want and charging them what they can pay. One big benefit of three-tier pricing is that customers will pay more for the middle option than they would otherwise (more below). So if you are using a pre-existing product, you can consider adding a little to the price.
- Quality – This contains everything the customer could need or want at the highest quality. It is often priced to make a higher proportional profit than the previous two options, especially where luxury, rather than necessity, is what is being offered. Target the very wealthiest and most demanding of customers with this offering.
How does three-tier pricing benefit me as a seller?
This system works in most situations and in many ways. It has also been proven to offer many benefits to sellers:
- It provides a good option for all your target customers – Assuming it is designed well. Keep the basic option basic and the premium option premium!
- It gives the customer options, making them feel in control and spurring them on to buy.
- Customers who might otherwise have paid for the basic option often decide to go for the standard simply because it is the standard. It’s an effect similar to keeping up with the Joneses and not wanting to stand out as a miser.
- The existence of a premium option leads people to be happy to pay more for the standard option. The customer tends to think that if people are willing to pay all that money for the premium, they can afford that bit more.
- In fact, a well-priced three-tier strategy can bring in more by inflating the price of the standard option than the premium option brings in altogether. A higher-priced top tier is proven to push up profit on the standard tier option, so don’t worry about overpricing the premium option or only getting a few leads on it. That’s what it’s there for!
- Online, the strategy can be analysed by counting clicks and conversions, allowing you to tweak it to perfection!
Hints and tips for setting out your three-tier offering
Imagine your pricing strategy not as a load of prices, but as a machine for generating profits. Tweak it and maintain it to get the best results.
- Clearly display the extra value you are offering at premium levels.
- Don’t try to jazz up your basic offering too much or it will stop people paying extra for the higher tiers.
- There are three main ways you can increase the value of your higher-tier offerings – By offering more of what is available at lower tiers, by offering a higher quality version of lower-tier offerings and by offering extras that aren’t available in lower tiers. For best results, utilise all three.
- Ensure the middle option is clearly the best value by making the jump from basic to standard smaller than the jump from standard to premium and by simply saying that it offers the best value.
- If you want to get into numbers, the scientific ideal (and this is by no means a one-size-fits-all solution) is generally to have a standard option that is just under twice the price of your basic option and a premium option that is just under three times the price of the standard.
If you want to see what a three-tier offering looks like in practice, check out my Pay As You Go Websites page. I don’t want to toot my own horn, but it’s a fairly good example of three-tier pricing and it brings in good leads.
Of course, the rules aren’t set in stone and it’s always good to try things. Make alterations and work out what is best for you.
In almost any situation though, it’s worth at least trying the three-tier system. Pop it up on your website and other marketing media, or talk to me about getting it out there on the internet.