Struggle with setting your prices?? Let’s make your pricing as simple, stress-free and profitable as possible!
Pricing is one of those topics you agonise over. You worry you’re charging too much, or suffer because you’re charging too little. You struggle to land clients because they feel you’re overpriced, or because your low prices give the impression you’re the cheap option, rather than positioning you as the superstar you are.
Getting your prices right is both incredibly important and difficult.
A great option is to use a tiered pricing structure. At first you might resist this as it seems like a more complicated, more confusing option when figuring out your prices is complicated enough.
But, when done right, a tiered pricing structure will tempt your clients and convert them where a single price would put them off – no matter what that price might be.
What Is Tier Pricing
Tiered pricing is a simple way of making almost any product or service more appealing.
On a simple level, tier pricing is a way of offering your product or service at different price points.
It’s a popular option you will encounter in many businesses, for both products and services. Whether you’re choosing how many channels you’ll get with the TV package, or selecting between free, 3 day, or next day delivery, you’re seeing tiered pricing in action.
The Benefits Of Tiered Pricing
Although there are several benefits to tiered pricing, the biggest and arguably best is that you will, quite simply, make more money.
Your ideal clients will pay up to the amount they can afford.
They can’t pay more than they have in their bank accounts, no matter how much they might want to. So if your price is set at (for example) $10,000, and you have a chunk of leads who really want it, but can’t afford more than $1000, you could reduce your price.
That would get them to buy.
But then you’re losing out every time someone who would have happily paid $10,000 buys in at only $1000.
Likewise, a chunk of your leads will happily pay more than $10,000. They will still buy from you, but you’re missing out again, because they value your work, and would pay double your asking price in a heartbeat.
The solution is really simple: offer your service at three levels, and you will convert more clients.
Better yet, every client you convert will pay you the rate they choose, based on what they need and what they can afford.
Tiered pricing widens your audience without broadening the scope of your ideal client, or forcing you to step outside your niche.
There are two things people appreciate more than anything: choice and value.
Tier pricing allows your leads to choose between you and you, rather than choosing between you and your competition.
Whereas with a single price you might miss out to competitors who offer budget options or are positioned as a luxury brand. With tier pricing you win regardless of the choice they make, because you are presenting a budget, standard, and luxury option.
Giving people a choice is not only beneficial because it gives them more opportunities to choose you, it’s a psychological benefit too.
Having a choice ensures that, whichever option they choose, your clients will feel they have received higher value.
It doesn’t matter if that value comes from getting a bargain, getting a luxury, or feeling they’ve saved money without needing to get the ‘budget’ option.
Beyond that, clients who buy in at a low level when they can afford it give you the opportunity to catch them early, transforming them into loyal clients who will upgrade when they can afford it, and repeatedly buy from you in future, resulting in a much higher client lifetime value.
How Profit Plays Into Tiered Pricing
Before you create your tiered pricing structure, you first need to settle on a price for your offering. Pricing any product or service can be tricky and there are a lot of factors that go into it. But, a huge factor that I want to highlight here is the role of profit in your pricing.
The Profit First method that I use and teach to all my clients is central to this as it highlights an important issue that many entrepreneurs face when setting their prices.
Normally, rather than pricing to attain a profit margin they desire, people price according to their level of expenditure, what they believe people will pay, and various other elements, always leaving profit at the end of the equation as the last piece of the puzzle. Profit becomes an afterthought. We are quite accustomed to the idea of accepting whatever is left over as our profit. It’s easy to understand why, because the equation used to calculate profit literally places it at the end:
You need to flip the equation when you are pricing your services so that it instead places profit first, before expenses:
It’s important to get totally clear on your goals and big dreams for your business, and decide how much profit you’re aiming to earn when you are setting your prices.
If you know how much profit you are aiming for, you can minimise your expenses and increase your sales price to ensure the amount of profit you earn matches your goal. That way, you know how much money you can afford to spend on expenses, without cutting into your profit, and how much you need to charge as a baseline for your product or service.
It’s super-important to know your baseline price before you create your tiered pricing structure.
If you’re panicking at this point because you’ve just realised you’re going to have to raise your prices in order to get anywhere near the profit you want to achieve, don’t worry. Raising prices can have a positive impact on your brand, as it can improve the perceptions your audience have of your business; you shouldn’t assume people will view a price rise negatively.
The Complexity Of Setting Prices
While you’re calculating your baseline price, remember that while factoring the level of profit you want to earn into your pricing is very important, it’s not all there is to it.
It also isn’t all about the costs you incur delivering that product or service, although again, these are a factor.
In addition to profit and expenses your price needs to account for factors like the value your clients receive (which is often far greater than the practical costs you incur!), and the value of the intellectual property you are giving your clients access to when you share this offer with them.
These are just two of the very intangible aspects of your business that should go into deciding your prices – if you price based solely on your expenses and the amount of profit you want to earn, you’re very likely underpricing yourself.
For example, if I offer a service that will help my clients earn millions of dollars every single year, that service is of far greater value to them than the literal time I spend delivering the service, and the costs I incur to do it. If I calculate the value of my service based only on these factors, I’ll end up with a price that reflects an hourly rate, plus the profit I want to earn, plus expenses.
And yet, the value of what I’m offering is the creation of a multi-million dollar business.
It’s tough to put a price on that!
So before you dig into creating a tiered pricing structure for your offer, make sure you’ve really considered all the angles when it comes to the value that service is providing, and exactly what constitutes a fair price for that value.
How To Create A Tiered Pricing Structure: The Trident Method
Who’s seen The Little Mermaid and remembers King Triton, Ariel’s father, and his big shining golden trident?
Triton (and indeed a lot of mythical deities) carries a trident for a really good reason; they’re very cool and incredibly powerful.
Believe it or not, that applies in business just as much as it does stories of gods, kings, and mermaids. Having a ‘three pronged’ approach works in so many contexts:
- Beginner, intermediate, expert
- Beginning, middle, end
- Bronze, silver, gold
- Too hot, too cold, just right
When creating a tiered pricing structure the safest option is what I refer to as the Trident Method – a three-pronged approach that offers customers a budget option, your core offer (the option you actually want them to buy), and a choice that’s far too expensive for most people but intriguing enough that those who can afford it will happily pay extra for it.
To create a Trident pricing structure for your business, you need to follow two very simple steps:
- Take the price you calculated as the baseline for your service – that is the ‘middle’ option, which I will refer to as your ‘core offer’ (the one you want people to buy!).
- Bookend that offer with two other options that make the real price a lot more appealing, while simultaneously catching clients who like a bargain and clients who like to know they have the best-of-the-best.
Getting Your Core Offer Right
Your core offer is the level in your pricing structure that includes your standard offering, at the price you calculated based on how much profit you want to earn.
Take some time and list out all the benefits and features that come with your offer (you can download my FREE Tiered Pricing Worksheet to help you with this!), and quantify how much each aspect costs you in:
- Intellectual Property
When you’re putting together your marketing materials, you’ll include the price you have set, as well as all these the benefits and features, but leave the literal cost breakdown out.
That is something you will use to decide on your ‘bookend’ tiers…
Simplifying It For The Basic Option
For your basic option take another look at that list of benefits and functions and highlight the core aspects. Which aspects are utterly essential for this offer to deliver the result it promises, and which go above and beyond that core solution to add extras? These are the benefits and features you will include in your basic package. The rest, you will leave out.
If you’re struggling here, consider which elements are essential so you retain all the basic functionality of your offer (it still needs to solve your clients’ problem!), and which serve as something that goes beyond that core functionality.
By streamlining your basic option you will make your core option appear even better in comparison, because it provides extras that will make life even better/easier for them your ideal clients.
Try to focus on elements that have tangible costs, for example, they require extra time, additional materials, or special software/systems you will need to pay for.