What is tiered pricing? Models, benefits, and best practices

What does tiered pricing mean? Tiered pricing is when you offer customers a range of options to match their needs and budgets. The lowest tier covers the essentials. Higher tiers include extra features that some customers don’t need, but others will happily pay more for.

In other words, each customer finds the right plan for their business, and you never leave money on the table. As a pricing strategy, it works very well. According to a Monetizely survey of 1,000 software companies, businesses that use tiered pricing generate 44% more revenue per user than those using flat-rate pricing.

In this article, you’ll learn how tiered pricing works, how it differs from volume pricing, and how you can use it in your accounting software to grow your business.

What is a tiered pricing model?

Tiered pricing vs. volume pricing: What's the difference?

What industries benefit most from tiered pricing?

What are the benefits of tiered pricing?

Best practices for implementing tiered pricing

How to use technology to improve your tiered pricing model

Grow your business with confidence

What is a tiered pricing model?

Manufacturing or wholesale companies that sell in large volumes may find success with tiered wholesale pricing by creating tiers that encourage customers to increase their order size.

For example, imagine Acme Manufacturing uses a tiered pricing model for its widgets. The first 1-10 widgets in an order cost $1 each. If the customer purchases more than 10, they would pay $0.75 per widget. Once an order reaches 20 or more widgets, the customer will pay only $0.50 per widget.

Retailers can also use tiered pricing to sell similar items with different features at progressively higher price points to appeal to more customers. For instance, say Taylor’s T-Shirts sells featherweight t-shirts for $10, regular t-shirts for $12, and premium heavyweight t-shirts for $15. Each tier has a different price based on fabric quality, allowing potential customers to upgrade their purchase.

Who uses tiered pricing? 

Software-as-a-service (SaaS) companies often prefer a tiered pricing structure because it allows them to sell multiple versions of their product, each offering additional features or more advanced functionality than the previous one. This setup encourages customers to move into higher price tiers as their business needs evolve.

Example: Mailchimp, an email marketing platform, offers Free, Essentials, Standard, and Premium plans. Higher plans offer additional functionality, such as A/B testing and custom branding, and an even higher premium option that includes advanced segmentation, predictive insights, and priority support for their highest-volume senders.

Tiered pricing helps businesses serve more customers with multiple offerings that fit diverse needs and budgets. By providing more value at each successive tier, companies can create an optimized pricing structure while giving customers the flexibility they need.

Tiered pricing vs. volume pricing: What's the difference?

Business owners sometimes confuse tiered pricing and volume pricing. The difference lies in which units receive the discount.

• With tiered pricing, only the units inside each pricing band get that band’s rate.
• With volume pricing, each unit in the order gets the lower price once you reach a certain quantity.

Here’s an example:

An example of tiered pricing vs. volume pricing

If Acme Manufacturing used volume pricing, it would charge $1 per widget for the first 1-10 widgets in the customer’s order. If the customer buys more than 10 widgets, all items in the order will be $0.75 each, and if the customer buys more than 20 widgets, the price will drop to $0.50 each.

If the Acme customer decides to buy 35 widgets, Acme gains more revenue by using tiered pricing rather than volume pricing.

That’s because the first 10 widgets are priced at $1 each (total cost of $10), the next 10 at $0.75 each ($7.50), and the final 15 at $0.50 each ($2.50), for a total of $25.

If Acme used volume pricing, all 35 widgets are priced at $0.50, for a total of $17.50.

When to choose tiered pricing over volume pricing

The right pricing model depends on how much inventory you’re holding, your sales targets, and the price-sensitivity of your market. Use tiered pricing to encourage upgrades and protect margins, and use volume pricing when you need to move inventory quickly or sell goods in bulk.

Here’s how this pricing structure works in real-life situations:

• Tiered pricing to encourage plan upgrades: Customers can start with a lower tier and upgrade as their needs grow. Each tier must add clear value, like more features, faster services, or better support. This model works best if you’re targeting steady and recurring income.
• Tiered pricing to win bigger average orders: Set price bands so only the units in each band get the lower rate. Earlier units keep their margin, protecting your profitability. This pricing structure works well for larger orders where you want to limit the size of discounts.
• Volume pricing for bulk sales: Once a customer purchases a certain quantity, the lower price applies to every unit in the order. This approach is ideal if you want to move inventory quickly, such as surplus, raw materials, or seasonal items.

What industries benefit most from tiered pricing?

Tiered pricing is a great strategy for businesses that offer a scalable product where value increases incrementally with added features. By aligning price points directly with value—like increasing user seats, data limits, or support priority—tiered pricing encourages natural upgrades as a customer's business expands.

Some common industries that leverage a tiered pricing model include:

• Software-as-a-Service (SaaS): This might be the most common instance of tiered pricing. SaaS companies typically define tiers based on functionality, number of users, storage capacity, or customer support levels.
• Media: Streaming services, online news, and digital content platforms all often use tiers to differentiate access, such as offering an ad-supported low tier, a standard tier, and a premium tier.
• Consulting: Consulting firms often structure their services into packages (tiers) that include varying levels of support and access to consultation. 
• Wholesale: Businesses selling physical goods may use tiered pricing by packaging similar products with different quality or feature sets at distinct price points.
• Utilities: Providers use tiers to manage usage, offering plans based on data limits, so that heavy users pay more for the resources they consume.

What are the benefits of tiered pricing?

Tiered pricing is a popular strategy because it helps businesses generate more revenue from the value they provide customers. Here are three key benefits of using tiered pricing for your products or services.

1. Attract a broader range of customers

Customers with different budgets and priorities will be able to buy from retailers who offer a range of options at various price points.

For example, Taylor’s T-Shirts can appeal to more customers by providing distinct price points and quality levels. The business attracts a teenage shopper with an inexpensive featherlight shirt, a workman with a mid-tier shirt, and an older woman with a premium shirt for a night out.

2. Boost sales by encouraging upgrades to higher tiers

Once customers buy the basic product for a lower price, they will be more likely to switch to an enhanced version from the next tier as their situation evolves.

Say Sparkplug Software gets a new customer that buys its basic software tier. After six months, the customer’s needs change; they inquire about additional functionality. Sparkplug’s sales rep moves the customer into the second-tier subscription, which offers the feature the customer needs.

3. Increase revenue with higher-volume sales

When customers see they can save money by buying more, they’re more likely to increase the size of their order.

Let’s say Acme used to sell widgets for $1 flat. After switching to a tiered model, a buyer who originally needed 10 widgets might decide to purchase 20 to get the discounted rate.

Best practices for implementing tiered pricing

To get started, focus on understanding your customers and making sure each tier clearly shows its value. Tiered pricing works best when companies know their customers and customers see the benefits of each plan.

For example, a B2B software provider needs to map every subscription level to a real user need. Customers should feel the price is fair and trust that the plan can scale as their business grows.

Think about someone visiting your pricing page. Could they pick a plan that was right for them in 10 seconds? Do the features, number of users, support time, and usage limits make sense for their business?

If the answer is “yes” and your company earns good money on each plan, then your pricing model is doing its job.

Design tiers based on buyer personas

Buyer personas are profiles that describe the main customer types your product serves. In B2B, they not only describe company size and activity, but also the goals, constraints, and operations.

For each type of customer you profile, think about the jobs they need to do and the constraints that make them difficult. Find out what they consider a successful outcome and how much they’d be willing to pay each month to achieve it. Discover their pain points and create a solution to overcome them.

For example, an email marketing platform might have these three tiers:

• Starter ($59/month): One inexperienced user can upload lists, access basic customizable templates, and send 5,000 emails a month.
• Growth ($199/month): Three users can access the platform, run A/B tests, integrate with Shopify, and send 50,000 emails a month.
• Scale ($499/month): Up to 20 users can integrate with CRM platforms like HubSpot, use dedicated IPs for higher delivery rates, create subaccounts, access advanced analytics, and send 150,000 emails a month.

Each tier should fit a particular stage of a company’s development. As your customers grow, make it easier for them to upgrade to the next plan than to switch to a competitor. For instance, Mailchimp makes it seamless to move from their Essentials to their Standard plan when a business needs advanced tools like A/B testing.

Align pricing and value in each tier

Customers won’t upgrade unless they can see the value in the higher price. If the price rises, the added perks should be clear and relevant to the next stage of use. As a rule of thumb, if the price doubles, the benefit should roughly double too, whether that’s in revenue potential, time saved, or capacity.

In our email platform example, the Starter plan helps a business send a basic campaign. For an SMB or a small Shopify store, this tier works well because they just need to get emails out quickly and cheaply to promote their products.

The Growth tier costs more but gives companies tools that save them time and help them sell more. They can personalize messages based on previous orders and run A/B tests to see which headlines and offers perform best. For around three times the price, they might generate 50–100% more conversions and cut campaign prep time in half.

The Scale tier is a further step up. Multiple teams can log in. They get better delivery rates, detailed reports, and more precise customer segmentation. 

CRM integration also enables them to measure how email campaigns contribute to each sale and identify which customers are most likely to buy again. The upgrade can double marketing efficiency and improve retention, easily justifying the higher price.

At every level, the higher price aligns with clearer benefits and outcomes: more sales, stronger collaboration, or better data sharing.

Differentiate the tiers clearly

On your pricing page, make the differences between each tier easy to understand. Use labels that reflect usage or intent, not just scale. Names like "Starter," "Pro," and "Enterprise" say less than “Solo campaigns,” “Growing teams,” and “High-volume senders.” A good tier name tells customers who it's for and what it provides.

Look at the layout of the feature list. If every tier lists the same benefits in the same order, with a few vague differences buried in footnotes, users won’t see the variation. Remove the shared features and replace them with a simple line like “Includes all features from Solo campaigns, plus:”.

If in doubt, ask yourself: Could a user pick the right plan without speaking to the sales team? If not, the tiers need to be clearer.

How to use technology to improve your tiered pricing model 

Implementing tiered pricing in an SMB can be challenging. Overcome many potential issues by investing in technology that manages key processes.

Address the risks of manual management

Even with a handful of customers, it’s difficult to manually update tiered pricing charts. As your business grows over time, mistakes can creep in, and that costs money. Common problems with manual pricing include:

• Revenue leakage: Misapplied discounts or miscalculated volume discounts reduce profit.
• Pricing inconsistency: Your website shows your “Standard” plan costs $18, but your invoice still says $16. That leads to complaints and refund requests.
• Discount stacking: Multiple vouchers or offers are applied simultaneously, dropping the price below your intended floor.
• Accounting complexity: The prices in your sales ledger don’t match those in your inventory or general ledger, making it harder to track profit or prepare reports.

Automate tiered pricing with software

Tiered pricing doesn’t scale well on a spreadsheet. As your business grows, you need modern accounting and inventory software to manage tiered pricing across all systems.

The right tools should include:

• Rule-based automation: Automatically add volume breaks like “1–10 = $1, 11–20 = $0.75” and bundled plans like “Plus = phone support + weekly reports” across systems, including checkout.
• Inventory syncing: When you sell the same item at different prices, your system should automatically update stock levels and values. Your records will then reflect your actual sales and revenue.
• Sales channel integration: Customers should always see the correct price at every touchpoint, whether online, in-store, or over the phone. Otherwise, you’ll end up with mismatched invoices and more pricing disputes.
• Automated calculations: The system should handle totals, taxes, mid-month upgrades, credits, returns, end-of-month reports, and more. This leads to more accurate accounting and less time wasted fixing errors later.

Continuously test

Experiment with tiered pricing to find the best return for your business. It should be an iterative, data-driven strategy. Use analytics to test and refine your pricing regularly. Track these key performance metrics:

• Average order value (AOV): The average spend per sale
• Average revenue per user (ARPU): Monthly revenue per subscriber
• Upgrade rate: Percentage of customers moving to a higher tier
• Churn: Percentage of customers who cancel each month

Run experiments to monitor changes in outcome:

• Test a price jump: Try increasing a tier from $35 to $37 for one cycle to see if it affects sign-up rates.
• Try price anchoring: Show all three tiers, but highlight the middle one as “Best value.” The top tier should make the middle one feel like the most sensible choice.
• Monitor churn: Watch for customers who leave because tier gaps are too steep, and adjust pricing to reduce drop-off.

Using the email marketing platform from earlier as an example, here’s how a test may work out:

By increasing the Growth plan price by $100 per month, ARPU rose 5% while churn increased by 0.1 percentage point. Calculate whether the extra money outweighs the slight drop in customer volume, and decide whether to keep, change, or roll back the new price.

Grow your business with confidence

The right tiered strategy can provide a strong foundation for scaling your business. The subscription model, which relies on tiered pricing, has grown rapidly over the past decade. Now may be a good time to adapt your products and services to accept ongoing, automatic payments from customers. That way, you lock in predictable income and build long-term customer relationships. 

Use QuickBooks’ payments system to automate payment collection from one-time and recurring invoices. With the right accounting software powering your company, you can simplify accounts receivable, track income automatically, and spend less time chasing payments.