Ever wonder why some companies offer such tempting deals for new customers? It's not just about being nice - it's a smart marketing move called progressive pricing. This clever tactic helps businesses attract new customers and grow their revenue over time.

Progressive pricing is all about making that first purchase as easy as possible. By offering a low-cost entry point, companies can reduce the risk for potential customers and get them to try out their product or service. Once customers are on board and see the value, they're more likely to upgrade to pricier options.

This approach can have a big impact on a company's bottom line. For example, when Soapbox tweaked their pricing strategy to offer a $5/month plan for up to 5 users, they saw their customer conversions skyrocket. In just one month, they were bringing in four times more customers than their previous monthly average.

While progressive pricing might mean smaller initial sales, it can lead to more customers and higher long-term revenue. The key is to focus on volume at first, then work on helping satisfied customers upgrade to more comprehensive plans. It's a win-win: customers get to try out a product with less risk, and businesses can grow their customer base and revenue over time.

Why this works

Progressive pricing works because it taps into several key psychological and business principles:

• Reduced barrier to entry. By offering a low-cost initial option, companies significantly lower the risk for potential customers. This makes it much easier for people to try out a product or service without committing to a large investment.

• Value demonstration. Once customers start using the product, even at a basic level, they can experience its benefits firsthand. This hands-on experience is often more convincing than any marketing material.

• Upsell opportunities. As users become more familiar with the product and see its value, they're more likely to consider upgrading to more feature-rich plans.

• Customer lifetime value focus. Instead of maximizing immediate revenue, progressive pricing prioritizes building a large customer base that can generate more revenue over time.

• Competitive advantage. In crowded markets, offering an attractive entry-level price can help a company stand out and capture market share.

• Data collection. Even with low-cost plans, companies can gather valuable data about user behavior and preferences, informing future product development and marketing strategies.

• Word-of-mouth marketing. Satisfied customers on entry-level plans can become brand advocates, recommending the product to others and potentially bringing in more customers at higher price points.

• Scalability. For digital products and services, the marginal cost of serving additional customers is often very low, making it feasible to offer lower-priced options while still maintaining profitability.

To implement progressive pricing effectively:

• Carefully structure your pricing tiers. Ensure there's a clear path for users to upgrade as their needs grow.

• Highlight the value of higher tiers. Make it clear what additional benefits users get as they move up the pricing ladder.

• Use analytics to optimize. Continuously analyze user behavior and upgrade patterns to refine your pricing strategy.

• Provide excellent onboarding. Help users get maximum value from their initial purchase to increase the likelihood of upgrades.

• Implement strategic feature limitations. Encourage upgrades by thoughtfully restricting certain features in lower-tier plans.

Remember, while progressive pricing can lead to lower initial revenue per customer, it often results in higher overall revenue and customer satisfaction in the long run.

How you can steal this

Here's how you can implement progressive pricing for your internet business:

1. Analyze your current pricing structure. Look at your existing tiers and identify opportunities to create a lower-cost entry point.

2. Create an irresistible starter plan. Design a basic package that offers core value at a significantly reduced price. For example:

   • SaaS company. A project management tool could offer a $5/month plan for up to 3 users and 5 projects.
   • Digital course creator. Offer the first module of your course as a standalone product at a fraction of the full course price.

3. Highlight upgrade paths. Clearly communicate the benefits of higher-tier plans to encourage future upgrades:

   • Ecommerce store. Show how subscribing to a monthly box saves money compared to one-time purchases.
   • Marketplace app. Offer additional exposure or reduced fees for sellers who upgrade to premium plans.

4. Implement strategic limitations. Carefully restrict certain features in lower tiers to drive upgrades:

   • SaaS company. Limit the number of integrations or automations in the starter plan.
   • Digital product creator. Offer basic templates in the entry-level plan, with more advanced options in higher tiers.

5. Focus on onboarding and activation. Help new users quickly see value to increase the likelihood of upgrades:

   • Software startup. Create an interactive walkthrough showcasing key features.
   • Online course platform. Offer a "quick win" lesson that demonstrates immediate value.

6. Use data to optimize. Continuously analyze user behavior and upgrade patterns:

   • SaaS company. Track which features drive upgrades and consider adjusting your tier structure accordingly.
   • Subscription box service. Monitor churn rates and survey customers to understand what motivates upgrades or cancellations.

7. Implement time-based upgrades. Encourage users to move to higher tiers after a set period:

   • Software startup. Offer the first month at a reduced rate, then transition to regular pricing.
   • Marketplace app. Provide premium features free for 30 days, then prompt users to upgrade to keep access.

8. Create bundle offers. Package complementary products or services to increase perceived value:

   • Digital product creator. Offer a discounted bundle of related courses or tools.
   • Ecommerce store. Create starter kits that combine multiple products at a slight discount.

9. Use social proof. Showcase success stories from users who started with the entry-level plan and upgraded:

   • SaaS company. Feature case studies highlighting how businesses grew with your product.
   • Online course platform. Share testimonials from students who advanced their skills through progressive course tiers.

Remember, the goal is to make that first purchase as easy as possible, then demonstrate enough value to encourage upgrades over time. By focusing on volume initially and nurturing customers towards higher-value plans, you can significantly grow your customer base and long-term revenue.

Examples of progressive pricing

Here are some real-world examples of progressive pricing in action:

• SaaS company. Slack offers a free plan with core messaging features and limited message history. As teams grow and need more advanced features, they can upgrade to paid plans starting at $6.67 per user per month.

• Digital course creator. Coursera provides many courses for free, but charges for certificates and specializations. This allows users to sample content before committing to paid options.

• Marketplace app. Fiverr starts all new sellers at the basic level, allowing them to offer services for $5. As sellers gain experience and positive reviews, they can unlock the ability to offer premium services at higher price points.

• Ecommerce subscription. Dollar Shave Club offers a starter set for just $5, which includes a handle and a month's worth of razors. After the first month, subscribers transition to regular pricing, starting at $10 per month.

• Software startup. Canva provides a robust free plan with access to many design tools and templates. Users can upgrade to Canva Pro for $12.99 per month to access premium features and more extensive design resources.

• Online learning platform. Duolingo uses a freemium model, offering all language courses for free with ads. Users can upgrade to Duolingo Plus for $6.99 per month to remove ads and access additional features like offline lessons.

• Project management tool. Trello offers a free plan for individuals and small teams. As project complexity grows, users can upgrade to Business Class ($10 per user per month) or Enterprise ($17.50 per user per month) for more advanced features.

• Cloud storage provider. Dropbox starts users with 2GB of free storage. As users need more space, they can upgrade to Plus (2TB for $9.99/month) or Professional (3TB for $16.58/month) plans.

• Website builder. Wix allows users to create and publish websites for free, with Wix branding. To remove Wix ads and access more features, users can upgrade to paid plans starting at $14 per month.

• Invoicing software. Wave offers free invoicing and accounting tools for small businesses. Users can then add on paid services like payment processing (2.9% + $0.30 per transaction) or payroll ($20 + $6 per employee per month) as their needs grow.

These examples demonstrate how companies across various industries use progressive pricing to lower the barrier to entry, attract new customers, and encourage upgrades over time. By offering a low-cost or free initial option, these businesses can build a large user base and then monetize through strategic upsells and premium features.