Tiered Pricing Overview: 3 Tiered Pricing Examples

A tiered pricing sales strategy allows businesses to offer their product or service at different price points based on quantity or functionality. For example, a SaaS (software as a service) company might entice customers with low price points at basic plans and eventually incentivize them to pay more for a premium plan.

There are several reasons why tiered pricing works for companies and startups. Businesses use tiered pricing to:

1. 1. Entice potential customers: One of the benefits of tiered pricing is that potential customers can customize the product or service to their needs. New customers who feel hesitant to buy a full-price product can instead choose a less expensive pricing plan. This business model can increase your conversion rates and help you reach a wider audience as you grow your customer base.
2. 2. Customize their product based on customer needs: A company can offer different pricing tiers or levels based on the functionalities the consumer demands. For example, a company can offer an ad-free, premium streaming service for customers who want that option.
3. 3. Penetrate competitive markets: A company can offer a low price to attract customers away from competitors in an oversaturated market. Over time, the company can try to upsell the customers and encourage them to upgrade to a premium account with a higher price.

While in a tiered pricing model, the cost of a unit changes based on the tiers, in a volume pricing model, the price per unit changes depending on the number purchased. For example, in a tiered pricing strategy, you can offer different price points for the tiers; you can price the first one to ten units at one dollar each and the next eleven to twenty units at fifty cents each. If the customer buys twenty units, the first ten will cost one dollar each, and the next ten will cost fifty cents each.

However, in a volume pricing model, if you offer a discount based on volume, all units cost the same price. If your base price is one dollar a unit, but you offer a discounted rate of fifty cents per unit when purchasing twenty or more, and the customer buys twenty units, they will pay fifty cents each—the same price for each unit.

There are several ways companies can use tiered pricing strategies to reach their target market. Some examples of tiered pricing strategies include:

1. 1. Feature-based tiers: A company might offer different pricing options tied to specific features so clients can select based on their needs. For example, if a software company offers a service that helps business owners organize their finances, a lower tier might include basic features for a small business, like expense tracking and budgeting, while a higher tier might have options for investing or organizing funds into categories. Clients can choose from the pricing options based on their needs.
2. 2. Three-tiered pricing: The three-tiered pricing model is one of the most basic structures companies use to encourage customers to pay more for additional services. A three-tiered pricing structure specifies different price points for distinct levels with varying features or offers. For example, a car wash might offer three-tiered pricing, with the lowest tier providing a basic wash, a second tier for a wash and wax, and a premium tier for all of the previous features plus an interior cleaning service.
3. 3. Usage-based tiers: A business can employ a pricing strategy based on the amount of use the client wants to get out of their product. For example, a rental car company might offer different price ranges based on how many miles a customer plans to drive. The first miles might have a higher price per mile, while the rate goes down if you drive over a certain number of miles.

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