Twilio, Slack, Stripe,  Atlassian - you know what these (and just about every other large SaaS company) have in common? They offer large discounts based on how much you use their products. This is the core idea around tiered pricing, bigger deals mean bigger discounts, and more value gained for the end-customer which leads to a generally stickier product (less churn).

What is tiered pricing?

Tiered pricing is a strategy used by many companies (not just SaaS) to price their offerings differently based on how much a customer ends up using.

An example of this would be:

Unit 1 : $50

Units 2-10: $40 per unit

Units 11-20: $30 per unit

Units 21+: $10 per unit

As the tiers go up, more discount is applied to the units within the tiers. This drives larger deals because customers will try and maximize the discount they get based on their current budget, the more units they buy the bigger discount they get.

This type of discount is especially good when dealing with larger customers because they will have the budget to take advantage of larger deals, and often a bigger headcount is needed to get the most value out of certain types of SaaS

Tiered pricing vs volume pricing

While a bit of a misnomer as technically both tiered and volume pricing are pricing based on the volume unit, when billing systems are concerned, the difference between tiered and volume is subtle, yet significant.

Volume-based pricing: when certain thresholds are met, price per unit goes down for all units

A purely volume based pricing model will discount the entire plan once a certain threshold has been reached, the difference from tiered (also called "Graduated pricing" due to price "gradually" changing) is that once a threshold is met, additional units will be discounted (rather than the full order)

The main reason you may consider using a volume-based pricing model instead of a graduated model is to encourage customers to place even bigger orders (which consequently at some threshold will indeed lower their total bill), this will make you less money in the short term but in the long term, LTV will almost always go up due to customer getting more value out of the product.

How to use tiered pricing with Stripe

Using Stripe Billing, implementing a tiered pricing model is extremely straightforward, you just need to create a new product and set up the pricing with either "Graduated" or "Volume"

One nice thing Stripe also lets you do is to define a flat recurring fee to get applied on top of the per-unit volume pricing, this allows you to sell a SaaS subscription on a standard price and charge additional volume-based fee per unit sold.

The pricing definition screen in Stripe, adding a flat fee can be very useful

Should you be using a tiered pricing model?

If you are charging by number of units, the answer to "should you be giving volume discounts?" should almost always be yes, ESPECIALLY when you are dealing with larger deals (in fact your customers will likely expect this to be the case).

If you are selling your SaaS with a standard tiered pricing strategy, you probably don't need to worry about this, although you should strive to end up with a way of grading value based on a metric/unit that can be quantified enough to charge by (so you can make more when dealing with larger customers)

How is a tiered pricing model different from a tiered pricing strategy?

Don't confuse the tiered pricing model with a tiered pricing strategy. The tiered pricing strategy is a very standard SaaS strategy where you offer multiple "tiers" (think basic, premium, enterprise) and each tier unlocks different features.

They are very different and can actually be combined for great effect! (for example you might have sell units at different prices per tiers, but combine that with a volume discount if they reach a certain threshold)

Learn more about Billflow

Once you've decided on what kind of pricing strategy/model you want to implement, Billflow can help you implement it. With the power of Stripe Billing on the backend, and Billflow on the front-end, you can execute any pricing model or strategy you can think of.

Billflow makes it easy to scale your billing up to handle orders of magnitude more customers and revenue streams.

Harness the power of Stripe + Billflow

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