Implementing Tiered Pricing For Online Services

Is Your Tier-Pricing Mean? Or is it above average? (Pardon the stats pun) 🤣 Normal Distribution Curve can guide Data-led changes in pricing tiers. Pricing of products and services is directly Associated with the revenues & profits That your business earns over time. If you are in an industry with a lot of competitors, You should follow the accepted market pricing When you launch your product early on. However, if your product is unique, you will see That you might be leaving money on the table By following the market-driven tiered-prices. So, how do you pivot or adjust your pricing? Start by looking at your revenue data. Revenue per user is what we need. Find the mean X-bar and std. dev. s. As an example, let X-bar = 30 & s = 5. Normal distribution curve shows that: * 68% of customers fall in (25, 35) range. --> This is the middle tier or Standard Plan. --> Shown in orange in the graphic. --> Priced between $25-$35 per user. * 14% of customers will fall in (35, 40) range. --> This is the upper tier or Premium Plan. --> Shown in blue in the graphic. --> Priced between $35-$40 per user. * 14% of customers will fall in (20, 25) range. --> This is the lower tier or Basic Plan. --> Shown in green in graphic. --> Priced between $20-$25 per user. * 2% lower outliers in the (0, 20) range. --> This is not an actual tier per se. --> Represents unwilling-to-pay users. --> Shown in pink in graphic on the left. * 2% upper outliers in the >40 range. --> This is a custom tier for bigger clients. --> Willing to pay on a larger scale. --> Shown in pink in graphic on the right. Actionable Insights: 1. Get clear data on expected revenue per user. 2. Identify Mean, std. dev., and chart them. 3. Apply Normal Distribution principles. 4. Give the best value in middle tier. 5. Offer incentives for low outliers. 6. Differentiate tier experiences. 7. Seek feedback from users. 8. Hire experts as needed. Shifting pricing constantly is bad business practice. However, if you discover that your product is In high demand, it is okay to adjust prices. It helps you to cut out unnecessary costs, And eliminate the lowest value users Who might use more resources. Follow Dr. Kruti Lehenbauer & Analytics TX, LLC for #PostitStatistics #DataScience #AI #Economics tips To improve top and bottom lines in SMBs! P.S.: Which tier do you buy a product at, when purchasing? Would love to hear your thoughts in the comments!

How do you determine initial pricing in an early stage startup? Jasdeep Garcha wrote about how we approached our own pricing at Schematic. Here are the key things that have guided us and that we've done👇 𝗪𝗵𝗮𝘁 𝗺𝗮𝗸𝗲𝘀 𝗶𝘁 𝗵𝗮𝗿𝗱? 1. Limited Customer Data: With a small customer base, identifying definitive trends about what customers value is difficult. 2. Lack of Comparisons: We couldn't rely on direct competitor benchmarks given our product crosses categories. 𝗛𝗼𝘄 𝗱𝗶𝗱 𝘄𝗲 𝗮𝗽𝗽𝗿𝗼𝗮𝗰𝗵? 1. Talked to customers: Conducted approximately 30 "willingness to pay" (WTP) interviews to understand perceived and relative value and fair pricing points. 2. Defined an internal philosophy: Created a set of principles that would guide our decisions. 3. Blended Decision-Making: Customer input shaped 75% of our decisions, with the remaining 25% informed by our vision of future use cases and market needs. 𝗪𝗵𝗮𝘁 𝘄𝗮𝘀 𝗼𝘂𝗿 𝗶𝗻𝘁𝗲𝗿𝗻𝗮𝗹 𝗽𝗿𝗶𝗰𝗶𝗻𝗴 𝗽𝗵𝗶𝗹𝗼𝘀𝗼𝗽𝗵𝘆? 1. Simplicity: Simple pricing to reduce confusion and accelerate decision-making. We wanted our pricing to be as low cognitive load as possible. Frankly, we're still working on this. 2. Accessibility: Designed tiers that even small companies or hobbyists could afford. 3. Push to Evaluate: Included time-limited free access to encourage users to try the product quickly. 4. Aligned Growth: Charged customers more only as their businesses grew, reflecting value alignment. 𝗪𝗵𝗮𝘁 𝗶𝘀 𝘁𝗵𝗲 𝗰𝘂𝗿𝗿𝗲𝗻𝘁 𝗼𝘂𝘁𝗰𝗼𝗺𝗲? Tiered pricing with 4 tiers. 1. Free Tier: For hobbyists and small projects, enabling quick integrations without advanced feature needs. 2. Team Tier: Added features like multiple environments and longer retention periods for scaling startups. 3. Business Tier: Introduced event-based metering and advanced security features. 4. Enterprise Tier: Tailored to large, sophisticated needs requiring dedicated support and enhanced performance.