“Do you want to biggie size it?”
Those who went to Wendy’s fast-food chain in the 1990s to early 2000s will remember this question being asked by the cashier when ordering fries. In other words, “do you want the largest french fries order we offer instead of the default size?” (Some of you may also remember the iconic “Where’s The Beef?” slogan from Wendy’s back in the 1980’s. But we’ll talk about that another time.)
You should be asking the same question to your customers…even if you don’t sell fast food french fries.
Consider Boilerplate & Beyond LLP, a legal firm that specializes in creating legal documents and contracts for new businesses as they get up and running. To be quick and inexpensive for their customers, they use a templated document into which they quickly “plug and play” the business information so it’s relevant and ready within minutes. Business is booming, and since they have a fabulous Fractional CFO, she asked the question she already knew the answer to: how can we biggie size your revenue? The answer: tiered pricing!
If you are turning away potential customers because you don’t offer exactly what it is they are looking for, it’s time to consider tiered pricing. Just like a fast-food chain offers small, medium, and large food options for different price points and hunger levels, your service offerings should be presented in tiers to meet your customers’ price and support needs. I’d love to be your financial ‘biggie size’ consultant. I can help you set up tiers that make sense for your business, adjusting what you already have to open up an entirely new market of customers. Schedule a consultation with me today to learn if biggie sizing your revenue with tiered pricing makes sense.
What is tiered pricing and when should I use it?
Tiered pricing offers different levels of service at different price points, with varying features. This is a very common practice with software companies. For example, QuickBooks Online offers three different pricing tiers that they’ve marketed as “plans for every stage.” (Just so you know, I’m not an affiliate of QuickBooks Online…it’s just a great example of tiered pricing!) A “simple start” plan offers the bare minimum features to meet the needs of those who either can’t afford anything higher or just don’t need the extra features. A ‘plus’ plan adds features and comes at a higher monthly price. And if a customer wants all the bells and whistles and can afford it, they can pay for the ‘advanced’ subscription.
The best time to implement tiered pricing is when you are ready and equipped to meet different audiences where they are in terms of budget and support needs. Offering a few different options can be helpful when you want to capture different segments of the market. For Boilerplate & Beyond LLP, they moved from solely selling to single owner startups to targeting mid-size businesses and large corporations once they introduced tiered pricing.
Here’s what that looks like:
- Their base service offering creates articles of incorporation and master services agreements for new businesses using a template. It’s a “plug and play” system for the company that offers high value to the customer. They offer this for $1,000.
- Boilerplate & Beyond LLP added a service that customizes the template for a customer’s specific industry and includes a 60-minute session with a lawyer. It’s a bit more hands-on for the company, with an increased value for the customer. The price for this service is $2,500.
- And if their customer doesn’t fit an existing template at all, they can pay for a completely customized legal document or contract for an hourly rate of $500, with a $3,000 minimum.
Once Boilerplate & Beyond LLP noticed they were turning away business, they introduced tiered pricing and biggie sized their revenue while maintaining the integrity of their core business.
How do I design tiered services and pricing to attract different customer segments?
It can feel overwhelming to add new services to your offerings when things are going well. Why mess with a good thing, right? But being smart and intentional about adding new tiered services has the potential to grow your business and your bottom line. And everyone wants their business to make more money! Here are a few best practices on how to do that well through tiered pricing.
First, determine what your customer really needs. To design tiered service offerings, figure out what your customers are looking for. For what reasons have potential clients declined working with you? If you took notes and look back, you might see an opportunity to open up another tier of pricing with services tailored specifically for them and their budget.
Communicate value at each pricing level. The QuickBooks Online tiered pricing page I mentioned earlier offers a great example of how to market the value of each level well. List everything the customer gets in each tier and make the benefits they receive clear, especially compared to the other tiers.
Pro tip: Be careful when pricing each tier – you don’t want to price it out based on your cost, but rather what the value is for your customer. For example, it doesn’t cost much for Boilerplate & Beyond LLP to slap a company logo on a template and interchange a few lines for their base service offering, but it adds huge value to the customer. Pricing based on the effort required by the company would undersell the long term value the customer receives.
Monitor the impact of tiered pricing on your revenue. You don’t want to see clients who were buying a top tier service now buying your bottom line service…if you do…something is wrong with your tiered pricing strategy. You want to keep high price customers where they are and bring in NEW business through the lower tiers. Make sure you have the right mix of value and pricing to achieve your financial goals; you should see an increase in revenue, not a decrease.
Pro tip: You can add tiered pricing in either direction. Like Boilerplate & Beyond LLP, perhaps your current service offering is the baseline and you add higher, more premium tiers. Or you can start with a higher tier and build tiers that offer a cheaper option. Sometimes smaller portions are healthier for your waist line…I mean… bottom line…as long as it fits your audience and their needs.
Adjust tiers based on the market demand and competition. Your number of competitors may increase once you introduce tiered pricing because you are playing in a different market. To know how this will affect your business and revenue, you may need to do competitive market research. With that information, you’ll be able to pinpoint the customers no one is serving, as well as ensure you are priced appropriately in each tier.
Pro tip: Don’t forget to ask yourself: how will my advertising or website need to be adjusted once I create or adjust tiered services? This is where most customers go first to shop around. Knowing how your competitors position themselves will help you know how to proceed.
Are you ready to biggie size your revenue with tiered pricing?
As a Fractional CFO and financial ‘biggie size’ consultant, I can help your business establish tiered pricing to ensure you are covering your costs and reaching your profit goals. Whether you want to add services at lower or higher tiers, it needs to be done with the care and attention that keeps your business’ health and customer’s satisfaction in mind. Schedule a consultation with me to learn how we can work together to grow your business.
