What is Saas Tiered Pricing?

Pricing Strategies

What is tiered pricing, and how does it differ from other pricing models?

Tiered pricing is a SaaS monetization model that provides users with different subscription plans, each with a different set of features and price points.

Through this pricing strategy, SaaS businesses can target different customer segments with diverse budgets and requirements.

Pro Tip

Consider combining tiered pricing with other models like usage-based or per-user monetization to align your product with the target market.

What are the advantages and disadvantages of tiered pricing for SaaS companies?

Here are the pros and cons of tiered pricing for SaaS brands:

Advantages

Wider appeal: With tiered monetization, SaaS brands can target different user profiles with distinct needs and purchasing power.
Upselling potential: This SaaS pricing strategy offers users the option to switch to other paid plans.
Scalability: All SaaS businesses can use tiered pricing.

Disadvantages

Complexity: To effectively use this method, it’s important to review features and create balanced and distinct pricing tiers.
Additional costs: One plan differentiator is the support provided, which may include supplementary expenses.

Keep in Mind

Pricing cannibalization can happen. When pricing tiers are not effectively designed, users might go for a lower-priced tier that almost meets their requirements instead of a more expensive one that provides a better feature match.

When is tiered pricing a suitable strategy for a SaaS business?

Tiered pricing is an option for a SaaS business in any growth stage. However, it can have optimal outcomes when:

Your target market is made of different customer segments.
Your product features can be clearly classified into different groups.
Your SaaS solution can have different pricing plans handling different requirements.

How do you determine the appropriate tiers and pricing levels for tiered pricing?

Consider the following aspect when establishing the right SaaS pricing tiers for your business:

Have a comprehensive understanding of your customers: Get acquainted with your users’ budget limitations, feature needs, and usage patterns.
Conduct a thorough competitor analysis: Assess pricing structure, value points, and feature sets.
Calculate your product expenses: When building tiers, it’s important to consider development and maintenance costs, as well as profit expectations.
Keep things simple: When starting, it’s advisable to stick to 3-4 plans and continue adding as you grow based on user feedback.

Pro Tip

The key to determining the correct pricing tiers for your SaaS depends heavily on understanding your customers and market.

How can tiered pricing be combined with other pricing models, such as value-based pricing?

Tiered pricing can be combined with different other SaaS strategies. Here are some examples:

By combining the freemium strategy with tiers, you can educate your users about your product and make them understand which paid plan they require. Additionally, this strategy matches user groups with pricing tiers.

Another option is to adjust plans with value-based principles. To do this, each tier should clearly reflect the value each customer segment receives.

Tiered pricing can be combined with both usage and per-user-based monetization, where plans gradually increase based on usage levels or the number of active users.

Conclusion

With tiered pricing, SaaS businesses are able to target different customer groups. This way, they can influence revenue streams and feature segmentation.