# Tiered Pricing Plans

25 Jul 2019

We recently changed our pricing model for PlanITDR from flat rate/month to a per device per month strategy. Of course we needed to model the pricing structure taking into account customers with larger fleets of backup devices.

This was our initial stab at pricing:

 1-25 devices \$10 26-50 devices \$7.50 51-150 devices \$5 151+ devices \$2.50

Turns out the boundaries really hurt:

 25 devices \$250 26 devices \$195 drop \$55 in revenue 33 devices \$247.50 34 devices \$255 move up a tier, have to add 9 devices to increase revenue

 34 devices \$255 50 devices \$375 51 devices \$255 drop \$80 in revenue 75 devices \$375 move up a tier, have to add 25 devices to increase revenue

Well that isn’t going to work, so I did some pricing models research and this graph shows what I didn’t understand before modeling above:

I assumed volume pricing, i.e. take the number of backup appliances the MSP manages, then multiply that number times the price of their band, i.e. 41 devices is 41 * \$7.50 = \$307.50

But the correct answer is “graduated” tiered pricing, i.e. 41 devices is 25 * \$10 + (41 - 25) * \$7.50 = \$370.

Playing with the rate and tiers, I can get to our current average revenue:

 rate discount 1-25 devices \$5.00 26-50 devices \$4.50 10% 51-150 devices \$3.75 25% 151+ devices \$3.00 40%

The new pricing scheme comes within \$100 total revenue of the flat rate pricing model - so essentially the average monthly invoice across our current MSP customer-base does not change. A MSP with exactly 150 devices will pay \$562.50.

Another is this model:

 rate discount 1-25 devices \$10.00 26-50 devices \$5.00 50% 51-150 devices \$2.50 75% 151+ devices \$1.00 90%

New pricing scheme yields a \$5,300 increase per month for our current MSP customer base. A MSP with exactly 150 devices will pay \$625.

Lots to price experiment!

Tags: startups

Published on 25 Jul 2019 Find me on LinkedIn!