Saas · Saas marketing

Why SaaS players offer three Options-Basic,Pro,Enterprise?Why not one?What is the logic behind this?

Murthy Chintalapati Founder, Ozonetel

November 15th, 2016

If as a SaaS offering if we give only one option, will there be an issue with adoption of the product.

Bryan Brewer Startup mentor, educator, and entrepreneur advisor; focus on helping companies raise investor funding.

November 15th, 2016

If you offer only one pricing option, the customer can choose either to buy or not. If you give three options, the customers tend to choose the middle option. It's all about psychology of choice, not the particular price point.

Bryan Brewer Startup mentor, educator, and entrepreneur advisor; focus on helping companies raise investor funding.

November 15th, 2016

Offering three options is a proven sales technique. Most people will choose the middle option. Search "psychology of choice" for details.

Mike Robinson

November 15th, 2016

Don't forget that most SaaS offering also offer a freemium model - or a free trial at a minimum.  Offering 3 flavors is tried and true, but if for some reason you have a hard time with 3 price points you could try just two prices: paid and free.  When people sign up, they get a 30 day free trial of the paid price point. After 30 days, you start charging their card for the paid version. If they don't want to pay, they can downgrade to the free version. 

Murthy Chintalapati Founder, Ozonetel

November 15th, 2016

Mike
Yes, offering free for 30 days is what we have in mind while offering only one price point.

We don't intend to ask for credit card information when they sign up to make it frictionless so that potential customer do not drop off during the signing up process. We are deliberating between what you suggested and 3 options to see what is the ideal way to get maximum traction.

Jeff Gindin Creator of a cycling accessories

November 16th, 2016

Hi: You have all the logic from the above postings so, let me give you some examples: (1) my project time system is free unless I don't use it for 30 days and then it is gone!; (2) my accounting system is free unless I want payroll and for that they charge; and (3) my Outlook replacement has a free model and a subscription model. In the case of the subscription model I pay because I get updates and support. So these don't have the classic three models but you can see why from the above there is strong logic behind the three tiers / models. (If you look at post WWII auto makes most had three models.)

For exactly the opposite look at Microsoft's Office 365 and good luck counting all of their models - it is confusing but they will tell it all makes sense. Your customers (or prospects) will really tell you what they want and you can always look at your competition for an indicator.

Good luck.

Murthy Chintalapati Founder, Ozonetel

November 15th, 2016

Bryan,
What happens if we give the middle option price as the ONLY pricing on the website?
Will we lose customers because there is no other option at the lower end?

Mike Robinson

November 15th, 2016

Also, bear in mind that for market testing purposes, the different "tiers" or "service levels" don't REALLY have to be different. Sometimes it feels like it could take a lot of engineering work to actually implement different classes of service. No problem. Just give everyone the premium service but in your marketing you can make up 3 tiers and charge different prices. (Ooops! That basic level actually gave you all the premium features?? Wow, we better fix that!)   Before anyone even catches on that it's actually all the premium level, you will have your test results and you can then engineer that actual tiers. 

David Rowell CEO & Founder at LifeLinker Inc

November 18th, 2016

When I buy shoes, they come in different sizes so I can choose the size that best fits.  When I buy baked beans, the cans come in different sizes for the same reason.  When I buy a car, the same thing applies.

And so on, through just about any/all products.  The idea of one size fitting all has been largely rejected, by both buyers and sellers.

There have been sensible comments offered already, but I'd like to add one more.  Sure, it is easy to understand from a buyer point of view that no-one likes to pay for more than they actually need.  But from a seller point of view, the flip-side of that coin is that by having multiple price points, you don't have to give away more than necessary.

With a single price point, you are almost certainly missing out on more revenue from users who get more than normal value from your product.  The Pareto Principle (the '80:20 rule') applies to this as it does to pretty much everything - 20% of your customers will use 80% of your resource; the other 80% will only use 20% of your resource.

If you have a single price, you'll of course target the 80% who are the light users and therefore likely to only pay moderate prices.  But if you have a second price point, you can then come up with a higher priced product for the 20% of users who are getting 16 times as much value from your product.

Or, of course, vice versa.  If you priced originally to target the 20% heavy users, you can come in with a second price point to reach the other 80%.

Note that I'm simplifying this into a binary model, but I completely agree that additional steps, and the classic 'three choice' concept, is an excellent further sophistication.  Adding further options can also be helpful, as long as the end result isn't a confusing morass of options and alternatives that ends up confusing and discouraging adoption.

Lastly, may I try and make a gentle suggestion, and as politely as possible.  If you really truly don't understand this multi-level pricing concept to the point of needing to ask a question that really is an utterly basic part of Marketing 101, you should be urgently adjusting the skillsets of your senior staff and bringing in someone with a marketing background.

As helpful as the people here are, you need this type of expertise inhouse and on tap, and without it, one of the huge problems is that you don't necessarily even know what questions you should be asking and what issues you should be considering.

Bryan Brewer Startup mentor, educator, and entrepreneur advisor; focus on helping companies raise investor funding.

November 15th, 2016

You could easily do A-B testing for the different options.