A 3-Step Method for Small Business Owners to Design a Tiered Price Menu and Get Paid What the Work is Actually Worth
Pricing Pointers, Issue #55
In the last issue of Pricing Pointers, we looked at why a “single best price” is a myth that leaves money on the table. But once you accept that you need a range of prices, a new challenge arises: How do you actually create that range of price points? Charging different prices for the same thing feels unfair, if not ethically murky.
The secret lies in changing your offer, not just the price. You need to stop thinking about your product or service and start thinking in terms of your offer instead. By deconstructing and reconfiguring your offer, you can build a tiered price menu that appeals to different types of buyers.
Identify your current offer
Basically, your offer is your answer to the customer who asks “What do I get for my money?” It’s everything you will give to the buyer (tangible products) and/or do for the buyer (intangible services), and how much money (your price) you want in exchange.
An offer can consist of both products and services. I bought a set of new car tires, a physical product, but the tire seller’s offer included installing the tires (a service), disposing of my old tires (another service), a warranty (another service) as well as periodically rotating my new tires for as long as I owned my car (another service.)
You’re offering to mow my grass for $? Well, what does that include? (What doesn’t it include?) What do I get for my money?
Deconstruct your current offer
Most businesses sell “the works.” They want to make their product or service as good as they possibly can. They bundle all the “bells and whistles” they can come up with into one package. While this seems generous, it actually limits your market. Some customers feel they are paying for things they don’t need, while other customers are priced out because they can’t afford the whole bundle.
Start by deconstructing your offer into its constituent elements. Look at everything you provide and/or do for someone who accepts your offer. Identify the “core” value: the essential elements that every customer wants and expects to solve their problem. These are the things that, if you don’t include them in your offer, are a deal killer. (Not going to dispose of my old tires? That’s a deal killer. Not going to rotate my tires every 6,000 miles? I can live without that.)
Then, look at the extras: the things that enhance your core elements, giving the customer a better experience or result. I like to think “more, better, different.” This might be more of a core element (e.g., greater service frequency), a better version of a core element (e.g., priority service), or another element (a supplementary service or product). These are your value-adding elements.
Build new offers by stacking elements
Once you have unbundled your offer into its different elements, you can begin “offer stacking.” This is the process of adding your value-enhancing element to your base (core) offer to create different variations of your offer. For example, your base offer might include just your core solution. Your mid-tier offer might add more frequent service. Your premium offer might add priority service.
This stacking creates a logical progression of value. It allows the customer to look at your price menu and decide which level of impact they need. The price doesn’t feel arbitrary because it is tied to the amount of value they are buying. This structure helps customers finds an option that best meets their needs and budget.
As you build these tiers, you want to vary the attributes enough that high-value customers are discouraged from trading down to a cheaper option. By leaving the “premium” bells and whistles out of your basic package, you make sure it doesn’t quite do enough for the people who really care about the results.
To visualize this, imagine a simple lawn-mowing service: your base tier mows the lawn, but it doesn’t include edging the lawn to make those crisp, defined lines along the sidewalk and driveway. For the neighbor who wants a perfect look, that base tier isn’t good enough for their needs. This encourages those who require a better outcome to move up the menu. This creates a natural self-selection that protects your higher-end margins while still allowing you to serve the budget-conscious.
Reimagine your current offer
Your goal this week is to prototype a tiered price menu that lets your customers tell you exactly how much value they want to buy. Once you have defined the two extremes, your “standard” middle tier will often reveal itself.
Take a look at your current offer today and ask yourself:
“What is the smallest, most limited variant of this I could sell?”
“What is the most expensive, high-touch variant I can imagine?”
By moving from a single offer to a range of offers, you stop leaving money on the table and start capturing more of the value you provide.
P.S. This week’s Pricing Pointers was a lot of fun for me to write. I hope you enjoyed reading it.