Not sure what tiered pricing is? Checkout our Tiered Pricing Introduction first.
TL;DR: Tiered pricing comes in two forms, volume and graduated. Here’s a deeper understanding of the model, how they stack up against flat PAYG, and when to choose tiered pricing.
Tiered pricing capture's the “only pay for what you use” nature of pay-as-you-go pricing (PAYG), but adds built-in bulk discounts that calm spend anxiety and improve unit economics as customers scale.
Where tiers win
Better unit economics at scale: Effective per-unit cost falls as usage grows; easier to defend value than renegotiating a flat rate.
Smoother adoption: Clear breakpoints guide upgrades; fewer “runaway bill” concerns during trials and ramps.
Stronger GTM: Publish discounts once; self-serve stays simple while sales gets predictable levers at higher volumes.
Where flat PAYG wins
Tiny or sporadic usage: Minimal cognitive load; one number is easier when customers never approach higher volumes.
Highly unpredictable workloads: If traffic is truly bursty/one-off, a single rate avoids tier boundary debates.
Ultra-simple implementation: Fewer rating rules, fewer edge cases to test.
Flat PAYG | Tiered (bulk discounts) | |
|---|---|---|
Pricing Complexity | One number to remember | volume-based discounts; a simple calculator is typically enough to forecast cost |
Cost at scale | Constant per-unit cost can become expensive at high volume. | Effective per unit cost declines as usage grows, a typical customer expectation |
Predictability | Risk rises with usage; no natural guardrails | Clear breakpoints, falling effective per-unit cost reduces surprises |
Expansion & sales levers | Limited; discounts are ad hoc | Built-in volume levers; easier ARPU growth |
Implementation & operations | Easiest to rate and invoice | More rules (tiers, boundaries, proration) to implement and explain |
Pricing agility | One rate; changing it means re-pricing everyone. | Adjust thresholds with versioning; easier to tune pricing for large customers |
The 3 most common setups for tiered pricing are:
Volume pricing (per unit), where the per-unit of all usage is based on their final tier.
Volume pricing (flat fee), where the customer pays a fixed rate based on their final tier.
Graduated pricing, where each unit of usage is charged based on the tier it's in. This leads to a blended rate.
An example of pricing tiers might look like this:
Usage | Per Unit Price | Fixed Price (alternate option) |
|---|---|---|
0-100 | \$1 per unit | $100 |
101-200 | \$0.90 per unit | $150 |
201-300 | \$0.80 per unit | $175 |
301+ | \$0.70 per unit | $200 |
Below are example costs at different usage levels for each of the 3 common pricing setups:
Usage Amount | Volume (per unit) | Volume (flat fee) | Graduated |
|---|---|---|---|
50 | $50 | $100 | $50 |
150 | $135 | $150 | $145 |
500 | $350 | $200 | $410 |
For graduated pricing, the 150 units = 100 x $1 + 50 $.90 = $145
In each example, higher usage customers will pay less than a fixed cost, further incentivizing more usage.
When considering tiered pricing, look for the following first:
You already have usage based (PAYG) pricing. If not, start with that.
Established customers and/or large prospects are asking for usage discounts. If not, stick with your current pricing.
You're not price competitive at large usage volume. If you are, stick with your current pricing.
When deciding between the different tiered options, here are a few common scenarios:
Situation | Pick | Why |
|---|---|---|
Customers fear runaway bills | Graduated | Falling effective per-unit cost and no price cliffs means customers view increased usage as unlocking savings |
Customer usage is clustered at different volume tiers | Graduated | Smoother boundaries |
Sales wants simple quotes and big-order incentives | Volume | One rate to point to; strong threshold nudge |
Enterprise deals with revenue predictability needs | Volume + Commit discounts | Forecastable for both sides |
Whichever you choose, follow these guidelines:
3-4 tiers max
publish per-unit cost so customers can see it fall
ensure margin stays healthy as cost falls
Flat PAYG still wins for tiny or sporadic usage. Tiered pricing gives you PAYG’s flexibility with built-in bulk discounts. Done well, tiered pricing yields better rates for high usage customers, and happier, loyal customers for you.
