Note: This is Part 2 of a two-part series on how to price your online course. If you haven't read part 1 yet, click here.
In Part 1, we left off at two-tiered pricing. In Part 2, you'll learn about three-tiered pricing and when to use it. But before we get into that, let's talk about the basics.
Pricing Helps You Profit
The primary reason any of this is worth your time is that it helps you set a price that not only feels right, but ensures you actually make a profit. You've spent countless hours working on your course. You've invested time and money in building your business. Isn't it fair to say you should make some money?
The simplest way to price for profit is cost-plus pricing.
What is Cost-Plus Pricing?
Cost-plus pricing is figuring out all the expenses related to running your course (and business), then adding your ideal profit margin to that number. The result is your "cost-plus" price. As my CPA says, if you don't know your numbers, you don't know your business.
Let's dig into how this helps you.
Why is Cost-Plus Pricing Important?
Because knowing your costs is the foundation to using more advanced pricing strategies, like value-based pricing. We haven't talked about value-based (premium) pricing yet, but the general relationship is this: If you try to use premium pricing before you know your costs, you're likely pulling an unprofitable rabbit out of an expensive hat.
In other words, you'll need to calculate costs to establish a baseline if you want to make a profit. BUT--and it's a big one--ultimately using this method puts a cap on your profitability. Which is when you graduate to the next level.
(If you missed my interview with CPA Jody Padar on the basics of pricing, click here to listen.)
On to three-tiered pricing!
The Benefits (& Psychology) of Three-Tiered Pricing
Three-tiered pricing is when you offer three "packages" at different price points for your online course. So if you have a course, you'd offer a Standard package, a Plus package and a Premium package. Each one would have different value.
Here's a screenshot of the three-tiered pricing Joseph Michael uses for Learn Scrivener Fast
Something for All Customer Types
In Part 1, I told you that if you only use two-tiered pricing you were leaving money on the table. That's because there are generally three customer types: budget customers, average customers, and our favorites: premium customers who want it all.
If you have three customer types, but you only offer two options, someone is being left out.
The Goldilocks Effect
Three-tiered pricing changes your customer's internal dialogue. They stop comparing your products with those of your competitors and start comparing you with you. It becomes a "this bed is just right" monologue.
Until you're at the stage where you can charge whatever you want without question, you should aim to create this situation. Your customers will feel in control and more confident about buying from you.
(Sidebar: This works if you're offering services too. It changes from "whether" to work with you to "how" to work with you. Either way, it works in your favor.)
Three-tiered pricing is a great introduction to pricing based on value, not cost. Value pricing means you're placing a number on the value your course provides for your customer.
How does tiered-pricing help you figure out that number? Experimentation, my dear Watson.
By offering different packages, you can test out price points. This helps you learn what number your customers place on your course's value. You also learn which packages they value and which they don't. And that's how you set your numbers.
If you're guessing that it takes a while to get the numbers just right, congratulations you're a genius! It does. So don't worry about getting it right the first time. Like I said in Part 1, this is about collecting data and learning.
Still have questions about pricing your online course? Lucky for you, I've created a pricing course called Price It Perfect.
In the course, you'll learn:
How to use pricing to maximize your profit
How to know how much your course is worth
How to charge premium pricing without alienating your students
The 5 pricing tactics to use to achieve your pricing goals
How to use psychological motivators to get people to buy your course (at the price you want them to pay)
How to analyze your sales performance & make price adjustments