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How To Create An Effective Value Ladder For Your SaaS Product

November 28, 2016

how to create an effective value ladder for your saas product

Software-as-a-Service (SaaS) founders and leadership know that price is one of the most important factors in the customer decision-making process.

A recent study by Bain & Company showed in over 80% of the markets in their recent study, price is the key purchase criteria. For many of these categories, on-premise software has a lower total cost of ownership over five or 10 years than the SaaS version.

Without the ability to truly test, feel and get to know how a SaaS product will work for your customers before purchase (and no, demos don’t count), having flexible pricing options can make or break your success in sales. In order to combat this challenge, you’ll need an effective value ladder for your SaaS product.

Before diving into your sales funnel, taking the time to plan your value ladder—or your products and services mapped in ascending order of value or price—is key.

As people move up the ladder, they’ll be offered more value—but this value will come at a price. That price doesn’t necessarily have to be more money, it can also come in saving people time.

For SaaS companies, tiered price packages (sometimes with free packages, often with not), are currently the majority of the markets profit pool—with Salesforce and Adobe Creative Cloud as examples, just to name a few.

Knowing which product features to provide for different segments of your market will open you up to more revenue. Here’s where to start in creating an effective value ladder.

Know The Competition And Your Customers, First

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Once you have an idea who the major players in your space are, you need to get an understanding of their strategies and tactics, so you can make yours better.

Filter through their content, online advertisements and email campaigns to get clarity on their message and pricing options. From there, figure out where your message and brand fits into the marketplace—and how you can blow theirs out of the water.

The same goes for your customers. Having an inside view of who they are, what websites they visit, how much money they make, their goals, challenges, location, etc, will give you the best visibility into knowing how much they’ll be willing to pay for your product. This will also allow you to segment them into different pricing structures.

These different pricing structures are often referred to as tiers—they’re revered as the most successful pricing structure for SaaS companies.

Here’s How To Break Down Your Product Into Multiple Tiers

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The most common pricing model includes a loose structure of five different tiers. Yours doesn’t necessarily have to be five, but offering multiple tiers at different price points gives you more opportunities to give your customers exactly what they need.

Tier 5: Lead Magnet

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This is often known as the ‘freebie’ stage, and is where you grow your customer list to get people in the door. This helps you qualify and capture qualified leads, by giving you a mechanism to collect people who may truly be interested in purchasing your product—after all, they did sign up for the free version.

Some examples of this tier include a trial period, or a simplistic version of your software that you’re willing to offer to the public for free, with many calls to action to update their subscription built-in.

Tier 4: Low End Products

Lower end products help you prove to the lead that you can solve the challenge their currently facing. This helps you to qualify customers, and move them further up sales ladder to determine whether or not they’re truly serious buyers.

Some examples of this include Buffer’s ‘Awesome’ package, allowing individuals minimal access to social media analytics and scheduling tools, or HubSpot’s ‘Basic’ marketing software, giving business’s minimal exposure to automation tools.

Tier 3: Mid-Range Products

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The mid-range products are the goal you’ll have in mind when enticing prospective customers to purchase your low-tier offerings. With your low-tier offerings, you’ll simultaneously work to build trust with that customer, and encourage them to upgrade as they find more value from your business.

Tier 2: High-Mid Range Products

High-mid range products encompass an almost complete view of your product. This might include an entire suite of your product, but without some add-ons that you have available for purchase.

For example, Marketo offers it’s full enterprise package without its ‘Events’ add-on. This allows contracted marketers to get the full benefit of their marketing automation software, while also providing them the opportunity to purchase more value from Marketo if they happen to attend a lot of events for which they need automation support.

Tier 1: High Range, or Full Service Products

The top-tier rung of your value ladder should include everything you have to offer for your customers—an entire suite of your SaaS product. A good example of a top-tier offering is Adobe’s full Creative Cloud subscription, giving customers access to the full suite of their latest products at all times.

For many organizations, it will be your goal for your customers to reach this tier, but for others, it’ll be better to keep customers diversified, as some may never have the need for all your services.

Remember: Your Ladder Doesn’t Only Have To Go Up

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Some SaaS organizations find success in implementing the value ladder backwards. While you’d still start with a lead magnet tier in order to attract customers to your solution, you’d then jump straight into presenting them with your top-tier offer.

From there, consider “selling down” and segmenting a payment plan for those customers who might not need all of your services, and onward.

The key to developing an effective value ladder is providing a multitude of pricing options to your customers, while providing strong and effective incentives for them to upgrade their services—the first of which will be a valuable product.

As you infuse each tier with the right mix of value and encouragement to upgrade to the next offering, you can keep your customers moving up your value ladder towards the top tier, driving revenue and growth for your business.