#16 — How to create subscription tiers that work

Why it matters: Pricing is one of the most critical decisions you'll make for your SaaS product, impacting everything from profitability to customer acquisition. Starting with a well-structured pricing model can prevent costly pivots later.§

The big picture: Whether you're launching a new product or refining an existing one, your pricing strategy should align with both customer needs and business goals.§

By the numbers:§

• Overcharging is generally better than undercharging - it's easier to offer discounts than raise prices
• Most users typically end up in mid-tier pricing plans
• Enterprise customers often have longer sales cycles but higher lifetime value

Zoom in: Popular SaaS pricing models each serve different business needs:§

Flat-rate pricing works best for simple products with consistent costs and defined features.§

• Pro: Predictable revenue
• Con: Doesn't account for varying usage patterns

Tiered pricing organizes features into clear upsell opportunities.§

• Pro: Appeals to diverse user segments
• Con: Requires careful planning to avoid overselling in lower tiers

Seat-based pricing scales with team size, making it ideal for collaboration tools.§

• Pro: Grows alongside customer expansion
• Con: Can alienate smaller teams seeking affordable solutions

Usage-based pricing aligns costs with value, particularly important for AI or API-heavy products.§

• Pro: Protects margins on variable-cost features
• Con: Creates less predictable revenue forecasting

Between the lines: Psychological factors matter when structuring tiers:§

• Reserve high-value features for premium plans
• Design tiers based on specific user personas
• Create "hooks" that drive interest in upgrades
• Factor in scalability as customers grow

Watch out: Common pricing mistakes include offering unlimited access to high-cost features, undervaluing premium capabilities, and creating overly complex structures.§

What's next: Treat pricing as an ongoing process. Post-launch, implement A/B testing, gather user feedback, and monitor usage patterns to refine your approach.§

The bottom line: The right pricing strategy balances customer value with revenue goals while allowing for scalable growth. Choose a model that protects your margins while delivering clear value to users.§