So you know how when you walk into a store there are usually different levels of products with varying prices? Well, that’s essentially what tiered pricing is. 

It’s a model that businesses use to monetize their services or products based on different tiers. The basic idea is that customers can choose the level of service or product they want based on their needs and budget. This allows businesses to cater to different segments of the market while also maximising profits.

For example, streaming services like Netflix offer multiple plans with different features at varying price points depending on the needs of users. Tiered pricing can be effective for businesses as it allows them to create value for customers and provide options while also generating revenue from each tier.

Read on to learn more about how to use tiered pricing models in your online businesses.

Tiered pricing example

When designing feature sets for different tiers of service or product, it is important to consider the target audience. Different audiences may have different needs, so it is important to consider which features should be included in each tier with the goal of providing the best service for each group. 

This might include different levels of customization, access to different levels of support, different payment options, or any number of other feature differences. 

For example, let’s have a look at the below tax services tiered pricing template. It has three levels of service: silver, gold, and platinum. As the price goes up, the features get better in each of the tier selections. It also highlights the version that prospects like the most.

In the above-tiered pricing template, you can see each of these tiers is bringing added value to the customer. In addition, if you make sure each tier is tailored to the specific needs of the audience, customers will be more likely to upgrade as they become more familiar with the product or service.

Tiered pricing structure

Typically your tiered pricing will include three plans to choose from.

Basic: The first plan will offer basic functionality and features. It is usually the most basic and affordable plan, offering a limited selection of features and services.  This plan is ideal for those with minimal needs and who want to keep their budget low. 

Standard: The second one is usually the mid-level plan, providing a moderate selection of features and services at a slightly higher price. This plan is ideal for those who need more than the basic plan but don’t require the full range of features offered in the most expensive plan.

Premium: The premium plan is usually the most advanced and expensive plan, offering a wide selection of features and services. The top tier typically provides the most robust and comprehensive features to serve the needs of more experienced users.

What is the difference between a tiered pricing model and a tiered pricing strategy?

In a tiered pricing model, the same product/service is offered at different prices to different customers. This model can be used to attract customers who are willing to pay more for a higher-end product/service, as well as those who are looking for a cheaper version of the same product. 

In contrast, a tiered pricing strategy involves charging different prices to different customer segments. This strategy is often employed by companies that have multiple customer segments that they want to target. For example, a company may decide to charge different prices to different customer segments, such as students or seniors, in order to maximise profits. The company may also charge different prices to different geographical regions if they believe that pricing in one region is more competitive than another.

Overall, the tiered pricing model and the tiered pricing strategy are two distinct pricing strategies that companies can use to maximize profits and differentiate their products/services in the market. 

The tiered pricing model involves charging different prices for different versions of the same product/service, while the tiered pricing strategy involves charging different prices for different customer segments. 

Is the tiered pricing model still ideal in 2023 for online businesses?

Definitely yes, the tiered pricing model is still ideal for online businesses due to the flexibility and convenience they offer. Tiered pricing models allow businesses to create different packages to suit different customer needs and budgets, while also providing customers with a range of options to choose from. 

With tiered pricing models, businesses can easily adjust prices depending on the customer’s needs and preferences, and can also offer discounts and promotions to further increase the appeal of their products and services. 

Furthermore, tiered pricing models give businesses the ability to track customer buying trends and preferences, which helps them to better target their marketing efforts and tailor their products and services to meet customer demand. 

All in all, tiered pricing models will remain a viable option for online businesses in 2023, as it provides them with the flexibility and convenience to adjust prices and create different packages to suit different customers.

The following are the most valuable general advantages of tiered pricing:

Flexibility

Tiered pricing gives customers the ability to choose which option works best for them and their budget. Whether the customer is looking for basic features or is willing to pay more for premium perks, there’s a tier out there that’s perfect for each customer. 

Appeal to a broader range of customers

Tiered pricing can be an effective way to appeal to a wider audience. By offering multiple pricing tiers with different levels of features and benefits, you make it possible for customers at different price points to find value in your offering. 

This is especially helpful if there are competing products on the market that offer similar functionality but at different price points. With tiered pricing, you can attract both budget-conscious consumers and those willing to pay a premium for extra perks.

Boost conversion rates

Tiered pricing not only increases revenue streams but also provides added value to customers through choice-making capabilities. Seeing multiple options makes customers feel like they are in control of their purchase decision and gives them a sense of satisfaction when they ultimately choose which package works best for them.

Helps to upsell

Tiered pricing is an effective strategy for upselling because it offers customers the opportunity to upgrade to a higher level of service or product. By providing multiple options at different price points, businesses can appeal to customers with varying needs and budgets. 

For example, a tiered pricing model for a software subscription might include basic, standard, and premium packages with increasing features and capabilities at each level. This encourages customers to consider spending more in order to gain access to additional benefits they may not have initially considered. 

How To Create Tiered Pricing (Best Strategies)

To avoid misunderstanding, keep the following factors in mind when creating tiered pricing plans:

Design the tiers considering customer personas

When creating tiered pricing plans, it’s important to consider the various types of customers that will be using the product or service. Different customer personas may have different needs and preferences, so it’s important to design the tiers accordingly. 

To get started, create a list of customer personas. Consider factors such as age, occupation, interests, and budget. Once you have identified the customer personas, create tiers that are tailored to each one.

Align pricing with value

When creating tiers, it’s important to think about what value each tier provides for the customer. Does the customer get more features? More support? More customization? Or is it simply a higher price for the same service? Consider your customer’s needs and what they might be willing to pay for.

When you are setting prices for the tiers, make sure to research the market and what competitors are charging for similar services. This will help you determine the right price points for each tier. Consider the cost of delivering the service and the value you are providing to the customer.

Differentiate the different tiers clearly

Be careful to describe and clarify the value that consumers will receive from each tier. The benefits of choosing a certain tier will be difficult for buyers to understand if the differences are not made obvious.

The number of tiers

Using a lot of tiers is allowed,  but it is best to limit yourself to no more than four in order to avoid confusion. If pricing is too ambiguous, you risk losing leads before they convert.

Highlight the best “value for money” tier

The best and most popular tier is often recommended by most businesses using their pricing. The recommendation needs to be honest, straightforward, and based on sales data.