Good-Better-Best Splits

#2-pricing-questions
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Curious if anyone has some hard data around this (I thought I had some in the past). When employing a Good-Better-Best model, how much revenue / many logos should one expect in each tier?

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Hi @Jasdeep_Garcha

I don’t have hard data, but I can share my experience from Format (50K subscriptions)

Our aim was roughly 30%/60%/10%.

The goal was always to get someone on the middle tier.
The entry level plan was to make it affordable to get started; we then worked on getting them to upgrade.
Last tier was mostly for anchoring (to make the middle one more attractive). We’d get some people to upgrade, which was a bonus, but the middle tier was always our main growth lever.

I hope this helps.
John

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@Jasdeep_Garcha Simon-Kucher would recommend a similar distribution to what @jkotowski outlined above.

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Thanks @jkotowski and @Steven_Meyer . Is that logo split or revenue split?

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two more questions:

  1. assuming this is for paid plans only – e.g. you wouldn’t consider a free plan a tier
  2. would you consider enterprise as a “best” tier or entirely different?
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I would largely agree with John’s splits but I have seen 20%/70%/10% as well. Usually it’s the 1st and 2nd that will move around with the 3rd usually coming in at the low double digit percentage.

To your subsequent questions, this would be more unit volume. In the example above, this would assume three offers that are generally similar. The skewing gets quite different if you introduce somethign like Enterprise or Custom as an option.

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Logos for that split.

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One needs to differentiate between logos per tier and revenue per tier. And then one needs to understand market structure and the distribution of potential customers. There is no one size fits all here.

Another question is what mode of tiered pricing are you using? Is the intent to get a customer into the tier that best fits them and only have them move when their business changes and another tier is not a better fit. Or is the design to attract a customer into a tier and then upsell. Are some of the tiers meant to establish anchor prices and are not really part of what most people consider (like that most expensive bottle of wine on the menu) or are all tiers in play?

Here are some steps you can take.

  1. What is the distribution of potential buyers for each tier
  2. What is the typical value to customer (V2C) you offer at each tier (you will need a value model to answer this)
  3. Define the goal for each tier
  4. Set a target value capture ratio for each tier (the percent of the value you create that you capture back in price)
  5. Work out what the profit optimizing (or revenue optimizing if you are topline driven) distribution (any modern AI can do this with careful prompting)
  6. Design packages and prices to reach the optimizing distribution
  7. Track performance every week to see how close to the optimum distribution you are getting

Happy to discuss more if you are interested.