Tiered pricing

Tiered — properly, graduated — pricing charges each band of units at its own rate. It works like an income tax bracket: moving into a higher tier only affects the units above the threshold.

Take rates of $1.00 for units 1–1,000, $0.80 for 1,001–5,000, and $0.60 above 5,000. A customer using 6,000 units pays:

1,000 × $1.00  =   $1,000
4,000 × $0.80  =   $3,200
1,000 × $0.60  =     $600
              ------------
Total          =   $4,800

Tiered versus volume — the distinction that costs money

This is the most frequently confused pair in SaaS pricing, and getting it wrong silently misprices every contract.

Under volume pricing, the whole quantity is charged at the rate its total qualifies for: 6,000 units × $0.60 = $3,600. Same rate card, same usage, $1,200 difference.

Neither is right in general. Tiered protects margin and produces a smooth cost curve. Volume rewards scale more aggressively and is easier for a customer to explain internally — “we pay sixty cents a unit” is a sentence; the tiered equivalent is a table.

Why it needs to be a catalog structure

Because tiered pricing is defined by thresholds and rates rather than a single number, it cannot be represented as a price on a product. It has to be modelled in the product catalog as a rate structure — otherwise every customer with different thresholds becomes a separate catalog entry, and the catalog becomes unmaintainable within a year.