How to position and price your monthly support plan using psychological principles

Every HR consultant should offer a monthly plan and encourage as many clients as possible to sign up to it. Why? Because recurring revenue is king.

Running a HR consultancy is mostly about fixed costs. It costs you a certain amount of money just to open your doors (or laptop if you’re still working from home) and make your service available every day.

If the real goal here is about delivering a brilliant service in a way that generates healthy sustainable net profits without the stress of managing cash flow, then you need to dramatically increase the amount of recurring revenue you take.

In fact, the ideal position is where your recurring revenue covers all of your fixed costs. And gives you a big enough wage that you can do more of the things you love, without any of the stress. Everything else is extra.

This advice isn’t new. The idea of recurring revenue and monthly subscriptions have been around for a long time. How many monthly subscription companies are you aware of now that are worth millions? You’ve probably tried Gousto, or Hello Fresh during Lockdown. I know I have. And they were great!

For this reason, lots of HR consultants I know have already created a plan - some of my clients have 40%, sometimes 50% of their active clients signed up to one which I think is brilliant.

Whether you’ve set one up, or are thinking about it in the future, this article is about how to position your monthly plan in the best possible way - helping you convert more project-based clients over to monthly subscription. And making it a no brainer for your clients to take the leap at the same time.

So, how should you put your plan together?

Creating a plan like this can be a real headache. I get it.

That’s why I know you might like to keep things nice and by only creating a plan with just one option.

But only offering clients one option, won’t help them buy. Here’s why…

Introducing the Hobson’s + 1 (or 2) Choice Effect

 A Hobson’s choice is a situation that involves a single option which you can either accept or refuse. A take it or leave it choice.

The expression comes from Thomas Hobson who was a wealthy landowner and stable owner in the 17^th century. Despite having a wide range of horses for people to ride, he would only allow his customers to take the horse that was nearest the stable door at the time. He did not want the best horses to get overworked by allowing people to choose for themselves.

Hobson’s customers could either take the horse nearest the stable door or not go riding at all.

Hobson’s choice has therefore become a widely-used expression for offering people a single option to either accept or refuse.

Psychologist Barry Schwartz developed the concept of the Paradox of Choice in 2004, which shows how people become overwhelmed when they have too many options.

However, Schwartz noticed that this effect only comes into play after 3 or more choices. In fact, it is usually better to offer people two or three options – rather than only one.

Research has shown that, when confronted with a true Hobson’s Choice (only one choice), we are more likely to go for the “leave it” than “take it” option.

Imagine now only offering your clients once choice! Scary…

If an alternative option is added, we feel more inclined to opt for one of the choices offered to us. This cognitive bias can be explained as follows: when we are faced with a “take it or leave it” choice, we use all our mental energy deciding whether to buy a product or not to buy it.

However, when we are given two or three options, we use the same mental energy to compare these offers, instead of considering the “leave it” option. This makes it much more likely at least one of the “active” choices will be made.

There’s also another psychological principle called single-option aversion created by a guy called Daniel Mochon which backs this up.

This is why you will often see products or services packaged up in a 3 tier plan. By offering 3 options, your clients are more likely to pick an option, rather than saying no.

For this reason, it’s my advice that you position your plan to clients in a 3 tier format.

Now that we’ve established it’s best to offer clients 3 options, how do you now go about creating each option?

This is where a lot of HR consultants get it wrong.

With stuff like this, it’s always best to keep it simple. A 3 tier plan is simply a positioning tool to help your clients pick just one option.

 When it comes to your plan, your focus should be on the one option that you really want to sell. You then position the value of the other options around it to make it the “no brainer” decision. And you can do this by decreasing / increasing value and price, comparatively.  

Typically, the option you want to sell the most is positioned in the middle.

That’s because clients are most likely to pick the middle option because we’re all subject to something called Central Tendency Bias.

Phycologists have a field day with this principle and have proven it with lots of different examples.

Give people a line up of 5 identical socks and they’ll go for the ones in the middle. Ask people to pick a number between 1-10 and often they’ll pick a number in the middle. Give people a 3 tier plan and they’ll pick the option in the middle.

Think about your own purchasing decisions. A good example I always use (and I kind of felt manipulated when I realised what was happening to me) is buying tyres at the car garage.

When I went to the garage, they asked me what standard of tyres did I want to put back on. I shrugged and said “you tell me”.

The explained that they have a cheap range that not many people go for. A middle of the road (pardon the pun) range, which are good tyres for a good price and is their most popular option and a top-of-the-line range.

Of course, I went for the middle option. It felt like I was getting the best value for my money.

And this is exactly how your clients will feel about your 3 tier offering, if you position the value and price correctly.

You should also highlight this option as the default option.

You could even have an arrow pointing to it with the text “best value for money” or “people usually pick this option”.

Why? Because of the Default Effect principle.

The Default Effect was studied by Johnson, Hershey, Meszaros & Kunreuther (1993) and demonstrates how having a “default choice” available influences our decisions.

Amongst all the options given to us when we need to make a choice, the default choice is the one that doesn’t require us to actually make any active decision. It has already been chosen for us.

By setting the middle option as the ‘default’ option, means you’ll sell more plans.

This is where I’d like to introduce the Decoy Effect principle.

The Decoy Effect principle, first demonstrated in 1982 by Joel Huber at Duke University explains how, when a customer is hesitating between two options, presenting them with a 3^rd option (acting as a decoy) will strongly influence their choice.

Imagine you own a café and you sell two sizes of coffee. A small cup costs £1.20 while a large costs £2.50. While the large cup provides more coffee, it also seems markedly more expensive.

But then you introduce a decoy – a medium coffee priced at £2.20.

When you compare the costs of each coffee and how much coffee you are going to get, the large cup of coffee now looks like the best value for money thanks to the decoy. Encouraging people to spend more and buy the large cup of coffee.

When it comes to your plan, we know that we want to encourage people to buy the middle option. So, both the lower and higher options could become decoys.

Typically, I encourage people to use the lower option as the decoy.

Bronze	Gold	Platinum
DECOY PRICE
£199 a month	£225 a month	£345 a month

Notice the pricing that I have used. The jump from £199 to £225, compared to £225 to £345 sounds very reasonable.

In the bronze package, I would advise that you include some very basic services, that would maybe underserve your client and not be a good fit.

The price of £199 doesn’t sound like a great deal then.

In your middle option, you should include the same basic services, but then add lots of additional services that gives the client everything they need, and a little bit more.

Using the principles we have discussed, this will make the middle option look like fantastic value for money. And remember this middle option needs to also encourage clients to move over from paying on an ad-hoc basis to a monthly subscription. So including additional value, over and above what they are already receiving is required.

The top option should then include everything in the middle option, but with more stuff added in. The additional value of the platinum package, compared to the gold package shouldn’t be more than the gold package, compared to the bronze package.

Again, this is all about positioning the services your client is going to receive compared to their monthly investment.

In the top package, I always advise clients to utilise two factors: convenience and access.

So, for people paying the top package, they get way more access to you and in an easier way. This just involves your time really and can prove very profitable if clients opt for the top package.

In my years of doing this, I know a lot of clients that actually opt for the top package. Despite positioning all of the options in the right way. Because they’re willing to pay that premium to get more of you. Which is just fantastic!

Notice how I have titled the options too – Bronze, Gold, Platinum. You can be a little more creative when coming up with your titles, but I have chosen to skip silver on purpose – using the connotations of each precious metal to my advantage.

The jump from bronze to gold is much bigger than from gold to platinum, yet the price increase from bronze to gold is much lower than the jump from gold to platinum.

I know I’ve gone through some advanced marketing stuff here, but remember this stuff and it’s easy:

1. Offer 3 options
2. The middle option is the one you want to sell
3. The lowest option is your decoy option (overpriced and underdelivers)
4. Make the middle option a no brainer by making it the best value for money
5. Add access and convenience (more of your time) to the top option

If you’re stuck and would like to have a chat about your monthly support plan, you’re welcome to chat with me any time.