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Estd 4.22.2023
Based on our saas pricing book, Price to Scale, the three-tier pricing model (or Goldilocks principle) is a strong starting point because it naturally creates a “sweet spot” that drives most customers toward the middle option. However, it isn’t a one-size-fits-all solution. Here are a few key points to consider:
• The three-tier model works well when you have a clear stratification of customer needs and usage. It simplifies decision-making and helps steer customers toward the plan that best maximizes both value and revenue predictability.
• For products in the early stages or when customers are less accustomed to tiered pricing, a simpler three-part model may reduce friction. In our book, we note that if your product is newer, customers might favor a linear model rather than multiple tiers.
• If your customer base is highly segmented—where different cohorts use your product in varied ways—offering more than three plans could allow you to tailor features and price points more precisely. However, it’s important to avoid simply adding tiers that are minor variations. Instead, consider distinct packages (for example, renaming certain tiers or adjusting the feature set) so that customers clearly see the differences and value in upgrading.
• The decision to add additional plans should come from a deep understanding of your customer’s behaviors, usage patterns, and value perceptions. As discussed in Price to Scale, it is important to proactively and creatively offer alternatives that align with both customer needs and your revenue goals.
In summary, while the three-tier pricing approach is a robust framework, offering more than three plans can work—if and only if you use customer segmentation and feature differentiation to create clearly distinct, valuable offerings. This nuanced approach ensures that your pricing strategy supports both market adoption and revenue optimization.