Software as a Service December 23, 2020

Know of any research on psychological price bands for SAAS products?

Justin Maner @Justjack

Does anyone know of research that can help inform SAAS pricing decisions on whether there are psychological price bands that impact conversion? For example, does $39/month feel closer to $49/month than $59/month (theory is that $50 hits a mental / psychological threshold). Does $20 a month impact conversion compared to $29/month? I have a service that my partner proposed we price at $60/month, but I wonder if that is in the middle of a psychological price band and we should either do $49/month or move up to $99/month (with a couple more features to justify).

Opinions are also welcome . . .

  1. 2

    I'll second what @orliesaurus said about looking at priceintelligently.com (by Profitwell).
    Check out their Pricing Page Teardown series - where they constantly mention the "AMEX effect" which are psychological effects with annual plans and using pricing cliffs at $50, $100, and $150. Here are some of their pricing teardowns that mention the Amex effect
    https://www.profitwell.com/recur/all/teardown-hey.com
    https://www.profitwell.com/recur/all/grammarly-pricing-page-teardown

    1. 1

      Wow, that is interesting. I tried to see if anyone else has data on the amex pricing effect, but couldn't find anything. I am going to check out a few other articles I was referred to though.

  2. 2

    If there's anything it will be on https://www.priceintelligently.com/'s blog or ebook
    You could also read the chapter from the book Influence by psychologist Robert Cialdini that talks about pricing items and how we are influenced by it...

    1. 1

      Sweet! Will check it out. Thanks!

  3. 1

    I don't know about psychological whatevers... but I had a tier at $25 per month and NO-ONE touched it. I changed it to $20 a month and its now my most popular plan.

    No idea how or if that's relevant, but there you go.

    Actually I should elaborate on that. My plans were 10, 25 and 50 and no-one was going for anything other than the 10 dollar plan. I had one on the 50 dollar plan.

    when I changed to 10, 20, 30 dollar plans I started to see the 20 and 30 dollar plans far outstrip the 10 dollar plans. So it wasn't that 25 was too expensive as plenty of people now pay 30 dollars, its just that even more pay 20.

    Maybe people just hate 5s?

    1. 1

      Wow, this is fascinating. Will let you know if I discover anything as I go down the rabbit hole.

  4. 1

    You might want to look into utility functions in micro economics. That should help you with determining prices. It has been proven that prices ending in a 9 or 7 come across as psychologically a better deal. I personally feel it's overrated and am of the opinion you should just test the upper limits of price elasticity for a given product.

    1. 1

      Yes, I had seen data from Wal-mart in business school that seemed to show that there is something to this. Plus, I have an econ background and saw a lot of fascinating A/B tests at Amazon that make me believe that there is more to psychological pricing than we probably give credit to.

  5. 1

    There are lots of excellent answers here, but to answer your question about research, there's Coglode Research, a behavioral econs resource that uses illustrations to illuminate concepts.

    The effect that mediates how we perceive pricing is the anchoring effect/bias.
    They mention a few papers, in case you want to go down that rabbit hole:

    https://www.coglode.com/research/anchoring-bias

    1. 1

      Ohh, this is fascinating. Yes, this is down the line of what I am looking for. I have seen interesting research on menu prices and how much of an impact anchoring can have. I will take a deeper look. Thanks!

  6. 1

    I would approach this question the other way and focus on your business revenue targets. As Jason Cohen from WPEngine outlines, your should ideally not price your SAAS lower than $66, as with this pricing model you only need 150 customers to attain $10k MRR. Highly recommend checking the video below.

    Source: https://www.youtube.com/watch?v=otbnC2zE2rw

    1. 1

      Cool, will check out the video!

  7. 1

    Personally, I would have had two distinct plans. I would price the basic one for $59/month and the pro one at $99/month with more features.

    Currently, while thinking about the pricing of sociomata.com (Twitter scheduling and automation tool) , we discussed many plans for individual creators and have agreed upon two plans. One of them will be $59/year and another one will be $99/year.

    1. 1

      Thanks for your thoughts!

  8. 1

    Just price and focus on customer acquisition, use the data from the customers objection to A/B test the pricing model. Don’t get too caught up on the numbers because the pricing will change overtime.

Recommended Posts