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Estd 4.22.2023
The answer is: It really comes down to striking a balance by segmenting your customer base and tailoring your offerings accordingly.
In our SaaS pricing book, Price to Scale, we discuss the importance of differentiating tiers so that you can both attract new users and create an incentive for upgrades. Here’s a breakdown of the key points from the book:
• Segment Your Customer Base: Rather than choosing an extreme—either fully loading lower-priced plans with all features or holding back too many key features—the book recommends segmenting your customers based on how they use the product. For instance, some users use the platform deeply while others are casual. This segmentation helps in tailoring the packages.
• Good–Better–Best Packaging: As discussed in our book, creating tiered packages allows you to offer sufficient functionality in the lower-tier to attract users, while reserving additional capabilities for higher-priced plans. The “good–better–best” framework ensures that the entry-level offering is compelling enough for initial adoption, yet the upgrade to a higher tier delivers significant, differentiated value.
• Defensive vs. Aggressive Strategies: If there’s a risk of churn, introducing a “lite” version can help retain customers, even if it comes at a lower price. However, if you’re looking to capture more revenue, holding back certain premium features on higher tiers can encourage customers who need those advanced functionalities to upgrade.
The essential takeaway from Price to Scale is that neither strategy should be implemented in isolation. Instead, by understanding your market segments and tailoring the feature set across your tiers—loading enough value into the lower tiers without cannibalizing high-margin upgrades—you can optimize both customer acquisition and revenue growth.