Friday, August 07, 2015

The Magical Three-Tiered Price List

I was talking to a coaching client a few days ago about his success converting "break/fix" clients to managed services. He made a very interesting statement about his price list for managed services: It's like a red velvet rope. If you're on the outside, you get treated like "everyone else." You pay higher rates. You wait your turn.

But once you sign a managed service contract, everything in your life is better. You pay a better rate. You have a written agreement. You get preferential treatment. Welcome to the special inner sanctum known as Managed Services.

The Three-Tiered Price List

When presenting your service offering, it's hard to under-estimate the power of the Three-Tiered Price List. There are three huge things this list does for your business and your sales process.

1. Internal Clarity

It can months of effort to develop what you consider to be a "perfect" 3-tiered price list for your service offering. While most people do 90% of the work in a day or two, the fine-tuning and tweaking can take forever. In addition to just figuring out what to sell and how to present it, many business owners need to go through the process of convincing themselves.

They need to convince themselves that their prices are fair. And that the bundles (1, 2, 3) make sense. And that there's a true choice here. And that you really don't need people who refuse to sign one of these agreements.

The reason some people take months to figure out their price list is that they need to pore over the details until they're both convinced and comfortable that this is the way to go.

2. Set the Agenda

The magic - the power - of the three-tiered price list is that it helps you set the agenda. Immediately, you'll see the client looking at the options and debating whether they want one or the other. "If I cover the workstations, but not the server, I might spend more money in the long run." Or, "Monitoring's fine, but there's no point in not moving up to a plan that covers anti-virus and spam filtering."

Because you've got a written document in full color, the client will not start asking about other plans or other options. They won't ask how you arrived at $125 per user or $25 for patch management. Whatever your tiers are, the conversation will be about comparing the bundles - not picking apart the pricing within them.

A perfect example of this is our own three-tiered price list. Our "Gold" option was $15 per desktop cheaper than the "Platinum" plan. With ten desktops, that means the client only pays $150/month extra to move up to the plan that covers all their equipment and their network. One hour of labor pays for that. As a result, we've never signed a Gold contract. Virtually everyone signed Platinum. Two clients (in 15 years) signed a Silver contract.

3. Go Shopping

Everyone likes to shop. No one likes to be sold. So hand over your price list and let the client go shopping. I go to a car wash where the attendant hands me a lamenated card with their options for Platinum, Gold, and Silver washes. I never ask if I can get the cheap wash with the triple foam polish. Maybe I could talk them into it, but the package with the triple foam polish is only ten dollars more, and includes the tire treatment, Rain-X, and a lot more.

See the point?

Your Platinum bundle should be significantly different from your Silver bundle. Your Gold should be somewhere in the middle. That way clients can spend time choosing to go with the plan that makes them most comfortable. They will choose. They will shop. You don't need to sell them.

The bottom line is that your Three-Tiered Price List is good internally, it's good externally, and it's a good sales tool. If you haven't started building a Three-Tiered Offering, today's a great day to start.

- - - - -
For related blog posts and some background on the Three-Tiered Price List, see:

Managed Services in a Month - Part Two

Managed Services in a Month - Part Four


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  1. Here's a great video about keeping the third tier that no one wants on your price list: - from Prof. Dan Ariely.

    Thanks to Alistair for that link.

  2. I have to agree about comparing prices. It will help you know the current trend in your industry and how you can go about it.


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