Part II · Chapter 5 · The House · lesson 10

Why the middle option exists

12 min

Three tiers on a pricing page. Nine, twenty-four, seventy-nine.

You are supposed to buy the twenty-four. The seventy-nine is not there to be bought. It is there to be looked at, for about a second and a half, on the way to the twenty-four.

An anchor is a number that arrives before a decision and changes it, including when the number is irrelevant and including when you know it is an anchor.

The mechanism is comparative. Nobody has an internal price list for a project management tool. In the absence of one, the only available reference points are the other numbers on the page — which is why the page has other numbers on it.

Remove the seventy-nine and the twenty-four does not become better value. It becomes the expensive one.

The operator's chair

You are setting the lineup. Your product costs almost nothing to serve per customer, so every unit of price is a unit of contribution.

Predict

You currently sell one plan at 24. You add a 79 plan with a few features almost nobody asks for, changing nothing else. What is the most likely result?

Nothing, because almost nobody will buy the 79Average revenue per new customer rises, mostly from people who would have bought the 24 anywaySales of the 24 fall, because the page looks more expensive overallIt only works if the 79 tier is genuinely better

Why price is the lever an operator reaches for first

Because it is the only one that costs nothing.

Cutting the cost to serve a customer takes engineering. Reducing acquisition cost takes a better channel, and channels get more expensive as you push them. Reducing churn takes a better product and eighteen months. Raising the price takes an afternoon and a deployment.

Unit economics

Hypothetical model, not a forecast

What one customer contributes, what one costs to acquire, and how long the two take to meet.

It assumes

Every customer pays the same price and costs the same to serve.
Churn is held at ten percent a month and does not respond to the price.
The acquisition cost is paid in full before the first payment arrives.
Nothing is discounted, so a payment in month thirty counts as one today.

It ignores

Fixed overheads, which unit economics deliberately leave out
Discounting, so a payment in month sixty counts the same as one today
Price rises, upsell, downgrade and win-back
That acquisition cost usually rises as the easy customers run out

A customer is currently worth twice what they cost to acquire. Get that to five times. Try it first by cutting the cost to serve or the cost to acquire, then try it with the price, and notice how far each control has to move.

Price a month100

Cost to serve a month40

Cost to acquire a customer300

Contribution a month: 60
Contribution margin: 0.6
Expected months as a customer: 10
Lifetime value: 600
Lifetime value against acquisition cost: 2
Payback ignoring churn: 5
Payback allowing for churn: 7
Payback happens inside the horizon: 1

Net position per customer
Contribution collected

A line starting at minus the acquisition cost and rising towards the lifetime value ceiling.
Month	Net position per customer	Contribution collected
0	-300	0
1	-240	60
2	-186	114
3	-137	163
4	-93.66	206
5	-54.29	246
6	-18.86	281
7	13.02	313
8	41.72	342
9	67.55	368
10	90.79	391
11	112	412
12	131	431
13	147	447
14	163	463
15	176	476
16	189	489
17	200	500
18	210	510
19	219	519
20	227	527
21	234	534
22	241	541
23	247	547
24	252	552
25	257	557
26	261	561
27	265	565
28	269	569
29	272	572
30	275	575
31	277	577
32	279	579
33	281	581
34	283	583
35	285	585
36	286	586

Not there yet — keep moving the controls.

Cutting the cost to serve all the way to zero gets you to a ratio of 3.3. Cutting acquisition cost to 120 — a 60 percent improvement, which no channel has ever delivered on demand — gets you to 5. Raising the price from 100 to 190 also gets you to 5, and it can be done on a Tuesday.

That is the whole reason the pricing page looks the way it does. Not manipulation, exactly. Arithmetic, pointed at the one variable with no engineering attached to it.

What would you do

You sell a scheduling tool. One plan, 24 a month, 11,000 customers, three-quarters of whom use fewer than half the features.

Your head of growth wants to restructure the pricing before the next quarter and has four proposals. The cost to serve a customer is about 3 a month at every tier.

Optimising for: Maximise revenue per new customer over the first twelve months, without increasing refund requests or the share of customers who leave in the first ninety days.
You cannot know: How many current customers would have paid more all along
Whether a cheap tier attracts new buyers or moves existing ones down
How your competitors will reprice once they see the page
How much of the first-ninety-day churn is caused by price rather than by fit

Raise the single plan to 34 and keep one tierThree tiers at 12, 29 and 89, with the 89 aimed at nobody in particularUsage-based pricing: 6 base plus a small amount per bookingKeep 24 and add a 240 annual plan billed up front

Now turn it around

You have now built the page. Here is what it takes to read one.

Three questions dissolve most of it, and they work because each one removes a reference point the page supplied.

What would I pay if this were the only option? Answer it before looking at the tiers, and the anchor has nothing to attach to.

What does the cheapest tier actually lack? Sometimes something you need. Frequently a limit set just below what a normal user does, which is a design decision and not a technical one.

Who is the top tier for, and have I ever met them? If nobody you can name would buy it, it is doing structural work rather than commercial work.

Check

Which of these is the clearest sign that a tier exists to shape a comparison rather than to be sold?

It is much more expensive than the othersIts extra features are described in categories rather than in specificsIt is visually highlighted on the pageIt requires contacting sales rather than showing a price

Being fair about tiering

None of this is deception, and treating it as deception will make you worse at buying rather than better.

Tiering solves a genuine problem: customers of very different sizes need very different amounts, and a single price serves one of them well and everyone else badly. A three-tier page is often the most honest structure available — it lets a small buyer in cheaply and charges an organisation with two hundred users something proportionate.

The prices are published. The features are stated. Nobody is prevented from buying the cheapest one. What is being managed is not information but attention, and the defence is correspondingly cheap: decide what it is worth before you look at what they have arranged around it.

Who pays, who benefits, who carries the risk

Who pays. The buyer who did not have a price in mind before arriving, which is most buyers of most things they have not bought before.

Who benefits. The seller, on a lever with no cost attached to it. And genuinely, the small buyer, who is only served at all because a larger buyer is paying several times as much for something that costs the same to deliver.

Who carries the risk. The buyer, and the risk is overpaying quietly rather than losing anything. Nothing goes wrong. There is no bad outcome to notice, which is precisely what makes it durable — a mechanism that never produces a complaint never produces a correction either.

Worth remembering

An anchor is a number arriving before a decision that changes it, and it works even on people who know what it is.
A top tier that almost nobody buys can still raise average revenue, by changing what the middle tier is compared against.
Price is the lever operators reach for first because it costs nothing to move, while cost to serve, acquisition cost and churn all require months of work.
In the worked example, cutting the cost to serve to zero could not achieve what a price rise achieved in an afternoon.
The defence against an anchor is to decide what the thing is worth before looking at what has been arranged around it.