From sandwiches to SaaS

If you look across Silicon Valley you won’t find many SaaS founders who once owned a subway restaurant. I’m one (or maybe the one). Before I ever thought of Salesbricks, I decided I wanted to become a franchisee for Subway. My wife thought I was crazy—but I assured her I was only half-crazy—and I took a whole lot of money saved from a career working in rev-ops and bought into three subway stores. 

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In my seventh month as a multiple store owner, my stores had to shut down because of Covid, and it didn’t turn out to be the success story I wanted it to be—but I learned a lot, especially about pricing. 

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So, here’s the full story, with all of the toppings. AND if you like it, set up a meeting with any of our product folks at Salesbricks. 

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The Subway Pricing Strategy: A masterclass in tiered offerings

Pricing and packaging strategies play a crucial role in business success. B2B SaaS companies often struggle to structure their pricing in a way that maximizes revenue while maintaining customer satisfaction. However, inspiration for effective pricing models can come from unexpected places—like the way Subway prices its 6-inch and footlong sandwiches.

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Subway’s approach to pricing and packaging is simple yet incredibly effective. The chain offers two primary sandwich sizes: the 6-inch and the footlong. While this may seem like a straightforward menu choice, it actually employs a few key psychological pricing principles that B2B SaaS companies can apply:

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1. Tiered Pricing for Different Customer Segments
   The 6-inch sandwich serves as a budget-friendly option, while the footlong is a higher-value offering that appeals to hungrier customers. This segmentation allows Subway to cater to different customer needs without complicating the purchasing decision. SaaS companies can adopt a similar approach by offering basic, standard, and premium tiers to accommodate different customer requirements and willingness to pay.

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2. Perceived Value Over Incremental Cost
   The price of a footlong is not simply double the price of a 6-inch sandwich—it is often positioned at a slightly discounted rate per inch. This incentivizes customers to “upgrade” to a footlong because it feels like a better deal. SaaS businesses can use this concept by encouraging upgrades through volume discounts or bundled features that provide more value at a slightly higher price.
   
   
3. Anchoring with Entry-Level Pricing
   
   When customers see the price of a 6-inch sandwich first, it acts as an anchor, the minimum or the base product offering. The footlong then appears to be the better deal in comparison. As an example, many stores can price the 6 inch at $5 and the footlong at $7 which is only an incremental $2 to buy the larger product. Similarly, in SaaS pricing, listing a lower-tier plan first sets an expectation that makes the higher-tier plans look like a superior value.

4. Customization and Add-Ons
   
   Subway allows customers to customize their sandwiches with add-ons like extra meat, avocado, or premium bread. These incremental upsells drive higher average revenue per customer. SaaS companies can implement similar strategies by offering add-on services such as premium support, additional integrations, or increased usage limits.
   
   
5. Promotions and Bundling to Drive Volume
   
   Subway frequently runs promotions like “$5 Footlongs” to drive volume and entice customers to buy the larger option. SaaS businesses can adopt similar bundling tactics, such as offering discounts on annual contracts or bundling premium features at a limited-time promotional rate to encourage higher adoption.
   
   

Applying the Subway Model to SaaS Pricing

By taking inspiration from Subway’s 6-inch and footlong pricing model, B2B SaaS companies can optimize their pricing strategies in the following ways:

• Introduce Clear Tiers: Offer well-defined pricing tiers that provide a logical upgrade path, much like how customers choose between a 6-inch and footlong.
• Use Value-Based Upsells: Incentivize upgrades by making higher-tier plans more attractive rather than just proportionally more expensive.
• Leverage Entry-Level Pricing for Anchoring: Position an affordable base plan that makes the mid-tier or premium option appear like a better deal.
• Maximize Revenue with Add-Ons: Offer additional features that customers can purchase to enhance their core plan.
• Drive Conversions with Strategic Promotions: Run limited-time offers that encourage customers to move up to higher-tier plans.

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Examples of pricing in action:

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How This Aligns with Subway’s Pricing Strategy

1. Tiered Pricing for Different Customer Segments
   
   • Starter = 6-inch → Entry-level, cost-conscious customers
   • Growth = Footlong → Best value, designed for growing teams
   • Enterprise = Deluxe Footlong → Premium, full-featured option
2. Perceived Value Over Incremental Cost
   
   • Growth plan isn’t double the price of Starter but includes significantly more value (just like how Subway’s footlong feels like a better deal).
   • Enterprise is a powerful upsell, offering the most capabilities for companies that need them.
3. Anchoring with Entry-Level Pricing
   
   • $49/month anchors expectations so $99/month appears as the “smart buy.”
   • Enterprise at $199/month makes Growth seem like the best balance of cost & value.
4. Customization and Add-Ons
   
   • Customers can upgrade usage incrementally (extra users, premium support).
   • White-labeling option for those who want advanced branding.
5. Promotions & Bundling to Drive Volume
   
   • Offer a 15% discount on annual plans (just like Subway’s promotions on footlong(s)).
   • “Upgrade to Growth & get 1 month free” to encourage mid-tier adoption.

Conclusion

Subway’s simple yet effective pricing structure is a valuable lesson in how to balance affordability, perceived value, and upselling. B2B SaaS companies that apply these strategies can create a pricing model that appeals to different segments, maximizes revenue, and enhances customer satisfaction. Offering a set of plans and having clear pricing and packaging also conveys to buyers that pricing isn’t just made up to increase fees for individual customers, but it’s pricing that is consistent and fair and offered to everyone else. Just like Subway customers feel they are getting a great deal when they upgrade to a footlong, SaaS buyers should feel they are making a smart investment when choosing a higher-tier plan.

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