Tiered Usage Pricing

Model Structure

Drivers (6)

UsageTier 1 LimitTier 2 LimitTier 1 PriceTier 2 PriceTier 3 Price

Outputs (7)

Tier 1 UsageTier 1 RevenueTier 3 UsageTier 3 RevenueTier 2 UsageTier 2 RevenueTotal Revenue

In the range of pricing models, tiered pricing sits closer to being aligned with the customer than flat pricing. This is because the customer gets to benefit from economics of scale. The more they use the product, the cheaper their cost-per-usage. Tiered usage pricing is a common pricing model in software. In many cases, the Tier 1 Price is FREE, with higher tiers combining a fixed monthly fee alongside the additional usage pricing. If you decide to implement tiered usage pricing in your business, anchor the tier limits to median customer usage and the tier prices to your target gross margins.

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