What is tiered pricing?
Companies use tiered pricing, a complicated way to set prices, to offer different deals or benefits to customers based on how many goods or services they buy or features they have. Customers who buy more often, buy more oversized items, or choose products with more features may be more likely to buy with this pricing plan.
Tiered prices can be set up in several different ways. One company might give a 10% discount on orders of $100 or more, a 20% discount on orders of $200 or more, and a 30% discount on orders of $300 or more. A business might also offer free shipping on orders over $50 and savings on future purchases for customers who spend a certain amount simultaneously.
Pricing based on levels can help increase sales and profits, but it’s essential to ensure that the deals are set up in a way that helps both the customer and the business.
Synonyms
- Price tiering
- Tiered pricing model
- Tiered pricing strategy
- Tiered pricing structure
What are the models of tiered pricing?
Tiered pricing is one of the most popular ways businesses set prices these days. Businesses use this model to set different prices based on customer demand for their goods and services. Factors like amount, features, quality, or usage usually set the tiers.
An example of this would be a company charging more for its best goods and less for its average ones. A company could also charge various prices for its services based on how often they are utilized.
Different prices for different items can be an excellent way to make more money. Businesses can get more value from their customers by giving them a choice of quality or service levels. For buyers, it means a better price, which makes them more likely to buy more goods or services.
Businesses can set the prices of their goods and services in several ways, some of which use tiered pricing. Most of the time, it’s based on numbers, features, usage, or a subscription.
Pricing based on volume
Usually, tiered pricing is based on volume, which means that as more units are bought, the price per unit goes down. Customers are more likely to buy in bulk with this plan, which can help businesses make more money overall. Businesses that sell physical things, like clothes or electronics, often set their prices based on how much of the goods they sell.
Pricing Based on Features
Using features to set prices is another popular way to use tiered pricing. With this model, customers can pay to use certain parts of a product or service. This is a common way for companies to get people to buy more expensive goods or software with extra features.
Pricing Based on Subscriptions
When pricing is based on subscriptions, the price per unit goes down as the contract length increases. Businesses often use this model to get people to sign up for more extended periods. Subscription pricing is often used by companies that sell repeatedly used services, like software-as-a-service (SaaS) goods.
Pricing based on usage
Prices for goods and services are based on how much a customer uses them. The price per unit goes up the more a customer uses. Businesses that sell digital goods or services, like web hosting or cloud storage, often use this tiered pricing.
Any business will use a different kind of tiered pricing plan based on its goals. A company that wants to boost overall sales might use a volume-based pricing model, while a company that wants to get people to buy more expensive items might use a feature-based pricing model.
Why tiered pricing is good
The tiered price has a lot of good points. Businesses can reach a broader range of customers by charging different amounts for different goods and services. Companies can also make more money with this pricing strategy because it can bring in more customers willing to pay more for particular items.
Tiered pricing is a flexible way to set prices that can help customers and companies. Here are some excellent things about tiered prices that companies might want to think about:
It lets companies go after different types of customers.
Businesses can charge different prices to different types of customers with tiered pricing. This could help them get more sales and draw different kinds of customers.
It can make something seem more valuable.
When people see that the same thing comes at various prices, they might think it is worth more. This is because having more than one price point makes the item seem more valuable than if there were only one.
It might help sales.
People may be more likely to buy something if they think they are getting a good deal, so having a range of prices can help you make more sales.
It can help keep customers coming back.
People may be more likely to buy or use a business again if they think they are getting a good deal. Some loyal customers are likelier to stick with a business in the long run if they enjoy the experience.
That being said, there are some problems with tiered prices. Businesses must keep track of which customers are in which tier and change prices accordingly, making it hard to set up and run. And buyers who think they are being charged too much for a good or service may not buy from you again.
Tips for Putting Tiered Pricing Into Action
Study and be flexible to find the best way to use tiered pricing. Here are some of the best things to do:
Know who the company’s clients are
You must first know who you’re trying to sell to to set the right price. Who are the best customers for the business? What do they want and need? How much are they willing to pay for the service or goods? Revenue leaders can use market research to determine if a tiered pricing plan is suitable for the business.
Write down the company’s objectives.
Businesses need to know their goals before deciding the best way to set prices. Managers of revenue operations need to know what they want to accomplish, whether it’s making more money, selling more, or appealing to a particular group of people.
Think about the costs.
No matter the pricing strategy, people making money must ensure that prices match costs. Costs like making, shipping, marketing, labor, supplies, and overhead need to be added to the price.
Pick a building plan.
Because of these things, business leaders can choose the best-tiered pricing system for their company.
Decide on prices
Prices can be set once the format of the prices has been decided. When sales managers set prices, they should consider three things: what other companies charge, how much it costs, and how much customers are willing to pay.
Test prices and be ready to change them
Last but not least, sales leaders need to put the price levels to the test in the market to see how they do. They can see how people react to different prices and deals.
Setting up pricing levels that make money
There are a few important things that businesses need to remember when setting prices that will make them money. First, CROs need to know the difference between direct costs (like labor and supplies) and indirect costs (like overhead). Then, they can set prices in a way that makes money.
Next, it’s essential to figure out how valuable your service or product is. This will help you determine what prices people are willing to pay based on how much they think something is worth. Each level should show a different value through features, access, or customer service when setting prices.
In addition, make sure that the prices are clear and straightforward. If you want to let people try your product or service without risk, offer a money-back promise or a free trial.
Lastly, people making money should think about the competition when setting prices. Find out how much other companies charge for similar goods or services, and ensure your prices are competitive to attract users.
Small businesses can set prices in a way that makes money for them by remembering these things.
Setting up CPQ tiers of prices
Businesses need tiered pricing to quote and set up complicated products accurately. Tiered pricing in CPQ lets users set different prices for goods based on the features, options, or levels of customization that a customer chooses. A tiered system helps businesses set prices in a way that makes the most money for them while also encouraging customers to buy more of a product or service or a more powerful version of it.
Price tiers also help ensure that no one is paid too much or too little for a product or service. This is especially helpful when working with things that can be put together differently, like software programs or computer systems. Let us say that a company has two levels of software: one level has essential software, and the other has more advanced software. That being said, customers might be more likely to buy the more expensive form if it has extra security features or other benefits that make it worth it. Businesses using this approach can make more sales while still making a good profit on each one.
It’s easy to set up discounts in CPQ based on numbers or word of mouth. By setting up factors that affect the list price, you can use CPQ to set up tiered prices based on volume. In this case, in DealHub CPQ, the user goes to List Factors and makes a price table. The person using the chart can set different levels of discounts and see how the discounts change the price. The user then goes to Products, picks the product that will get the discount, and uses the drop-down menu to choose the tiered price. Finally, they click “Save.” In this movie, you can see how easy it is to set up tiered pricing in CPQ.
