“Raise your prices” is the mantra of all solopreneurs. “Add expansion revenue” is its less well-known twin.
I’ve just done both on my SaaS product (Keepthescore.com).
💰 What is expansion revenue?
Expansion revenue, also known as upsell or cross-sell revenue, refers to the additional revenue generated from existing customers who make additional purchases beyond their initial or core purchase. It is a crucial aspect of business growth and revenue generation for companies.
Another way of looking at expansion revenue is that it allows you to “milk the rich”. Up till now, I only had one price for my product, which means that the less financially capable (e.g. teachers and small institutions) were paying the same as businesses. It’s fairly safe to assume that businesses are not as price-sensitive as other customers, so my challenge was to slice and dice my features to create a pricey “business” package.
👔 How I structured my “business” package
The one feature I identified as being relevant to business was the ability to embed a scoreboard or leaderboard on a third-party site or page. So that went into the business package.
I also came up with a so-called “value metric”: It quantifies the value delivered to the customer and can be based on factors such as usage, number of users, data storage, or any other relevant metric tied to the customer’s benefit from using the SaaS offering. In my case, I went with the number of scoreboards you can store in your account. This number increases as you move up the pricing tiers.
I also wanted a low-cost package to make my pricing tiers “symmetric” so that users pick the middle one (see screenshot below). When users are presented with three pricing tiers and opt to choose the middle one, it is commonly referred to as the “decoy effect”.
🐥 How I structured my “low-cost” package
Looking at my data, I know that a lot of customers initially paid to get rid of the ads that are shown on the free tier. I often got feedback that ads are annoying but that the price was too high to get rid of the ads.
So the main feature of the low-cost package is that it is ad-free. I also threw in a small feature from the free tier to make it more interesting: editing colors of the scoreboard. This is actually not currently being enforced (so you can still edit colors if you are a free user), but I suspect that many users won’t even realise 😊
💸 Raising my prices
All solopreneurs begin with pricing their products far too low. Why?
I think it has a lot to do with self-confidence: “Why would anyone pay that much for my product?”.
Another reason is a guilty conscience: “I simply cannot take that much money off people”.
Growing up as a soloproneur means getting over both of these sentiments and charging more. So that’s what I’ve just done.
Here is my old pricing
Here is my new pricing
What happens now?
I have no idea what happens now. I am hoping that I see a big increase in revenue. But it may go wrong and the low-cost tier takes a huge chunk out of my revenue. There is only one way of finding out:
Action produces information – Paul Graham (founder of Y-Combinator)
If things go wrong, I will adjust the pricing. We’re about to find out together! 🤞