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Estd 4.22.2023
Below is a summary of the recommended approach from Price to Scale:
Direct Answer
Our book recommends using a capability pricing approach for add-ons. This means that rather than creating a completely separate pricing model or a complex consumption-based variable, you should set a distinct price (which can be either a fixed fee or a percentage of the base fee) for each additional feature or module. Whether you offer these as stand-alone add-ons or incorporate them into higher-tier bundles depends on several factors, including the complexity you want your sales team to handle and the stage of your product.Insights from Price to Scale
Capability Pricing for Add-ons:
As discussed in our book, add-ons should be priced using a capability pricing method. This approach allows you to avoid an overly complex consumption-based pricing model. You can price the additional capabilities as a lump sum, either fixed or as a percentage of the base fee. (See Figure 17 in Price to Scale for a visual explanation.)Separate vs. Bundled:
Separate Add-ons: Separately priced modules give your sales team the flexibility to add specific value propositions as needed. This works well when you believe customers will appreciate tailoring their experience and when you have an established sales process to handle the additional complexity.
Bundled in Higher-Tier Subscriptions: Bundling add-ons into a higher-tier package can simplify the decision process for prospective clients and tends to support predictable revenue, especially with enterprise buyers. This can also reduce friction if the product is relatively new and customers prefer a simpler, linear pricing model.
- Practical Considerations
- Product and Market Maturity:
If your product is still evolving or your customer base is more risk-averse (such as in many enterprise situations), bundling add-ons in higher-tier subscriptions might promote smoother adoption. - Sales Operations:
A modular, capability-based add-on approach (with separate purchasable modules) can work well if your sales team is equipped to manage the increased complexity and nuanced discussions around value-add features.
- Takeaway
The book emphasizes that there is no “one-size-fits-all” answer. Instead, assess your product maturity, customer base, and internal sales capabilities. Doing so will help you decide whether a modular pricing approach with add-ons sold separately or bundling add-ons into higher-tier subscriptions is more appropriate for your business model.
In summary, Price to Scale encourages you to leverage capability pricing for add-ons while carefully balancing complexity with client adoption and revenue predictability.