One of the most important economic concepts is the demand curve. It’s a graph that suggests that as the price increases, the demand for units decreases. Assuming (a) buying need and (b) purchasing power is constant. Looks something like this:

According to the Pareto distribution, 80% of your revenue will come from 20% of your users.

For 1k users subscribing to your SaaS for $10/year, & that’s your only product, you’ll earn $10k in ARR.

But if you add a $40/yr tier, 80% (800) of your clients would still only spend $10, earning you $8000. But the remaining 20% (200)will buy that $40 package instead of $10. This generates an extra $6000. By creating this second package, your yearly earnings go up 60% to $14,000 in ARR.

This implies that 1/5th (20%) of your users will spend 4x the money (80/20) than the previous cohort.

As you can see, this small change can lead to significant increase in your expansion MRR.

The lesson here is: create SaaS pricing tiers in multiples of 4x.

Hubspot’s pricing follows a [x, 16x, 64x] syntax while Mailchimp follows the [x, 4x, 16x] framework

As pricing multiples scale, so will the corresponding value. (eg: usage based pricing) – after all, value is directly proportional to price.

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