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Tiered pricing is the most common way to set pricing for SaaS today. Here’s how you can set a tiered pricing strategy that works for your business.
Pricing matters. Charge too little and you won't earn enough revenue to stay afloat. Charge too much and you could lose thousands in potential business. Yet, you don’t want to price out some customers or cause others to feel you can’t meet their needs.
So what can you do? This is where tiered pricing comes into play, and can be helpful for SaaS companies to meet the needs and budgets of each of their different customer personas.
We previously published a guide on different SaaS pricing models and how to choose the best pricing for your business. This guide, however, will take a deeper look at tiered pricing, including how it compares to volume pricing, the benefits of tiered pricing, and strategies you can use to determine your pricing at each tier.
Table Of Contents
Tiered pricing is a pricing strategy (often used by SaaS companies) that provides customers with several product plans or packages that offer a particular set of benefits at different price points. Those benefits can be in the form of features, supported users, storage space, and more.
When using tiered pricing, companies may have three to five or even more different pricing tiers. An example might be a pricing structure that includes a Basic, Advanced, and Enterprise level plan. The Basic, or “base”, plan will have limited features, customer support, and service performance levels.
The Advanced plan may include all or most of the features offered. Whereas the Enterprise plan may include features or benefits custom to large businesses with unique needs.
Salesforce uses a similar approach for their sales CRM software:
Here are a few more pricing-tier examples and naming structures:
Now, let’s look at some companies using tiered pricing successfully.
If you are unsure whether to make your pricing model tier-based or what to include in each tier, here are some real-world examples to help guide your decision.
The revenue acceleration platform, Drift, relies heavily on a three-tiered pricing strategy. They clearly explain the ideal use cases for each plan. You’ll also notice that Drift uses only five items per tier to make it easier for potential clients to understand and compare what each plan offers. It then elaborates on each plan's features and offers additional options below the pricing table.
Formstack includes several unique options, including Forms, Sign, Documents, Forms for Salesforce, and Platform (a combination of Forms, Documents, and Sign). All five offerings come in four- or three-tiered pricing models. The following are examples of plans under the Platform tier.
Because of this multi-level tiered pricing strategy, Formstack captures even more diverse customers than it otherwise would.
Obsidian is an excellent example of how to tier SaaS pricing according to user type and features. If a customer wants more features, Obsidian offers them for an additional fee per bundle.
CrazyEgg offers five-tiered pricing for its website optimization solution. If your offering has many unique features, includes several personas, or involves special use cases, you will find inspiration in this pricing structure.
The plans also showcase a hybrid pricing approach (combining usage-based pricing and tier-based pricing) to appeal to a wide range of customers across various growth stages and budget levels.
The conversion intelligence platform, Unbounce, offers two separate plans for different customer personas:
Each plan comes with three and two additional tiers, respectively, as well as a Concierge plan that provides Unbounce's enterprise-grade functionality.
In the second tier, the plan offers similar services (creating and optimizing landing pages) but at a different usage level and budget.
Price Intelligently capitalizes on a two-tier model to motivate potential customers to sign up for its monthly subscription service, which is great for their cash flow. That they offer more capabilities in it than their 1-sprint option is a sign that they are promoting the monthly subscription.
The intelligent call tracking platform, ResponseTap, uses a two-tiered pricing approach differently. Price Intelligently offers a flat-rate versus recurring approach, but ResponseTap offers a flexible feature-based pricing plan, so customers pay only for the features they use.
There is a $100 license fee for standard features, with additional add-ons available based on customer needs, and even more customized packages are available for large companies.
Considering the seven examples, it is clear how different SaaS companies achieve market-price fit while maximizing revenue. Still, why is the tiered pricing model a favorite among SaaS businesses?
Tiered pricing has several distinct advantages over other SaaS pricing strategies. The full list of benefits will differ from company to company.
Here are some tiered pricing benefits that apply across the board:
Even so, a SaaS pricing strategy based on tiers is not perfect. Consider these possible disadvantages:
Volume-based SaaS pricing is a good way to sell measurable quantities of a product or service. Examples include cloud storage, usage time, support calls, and minutes served. It can also include computing resources, such as CPU capacity, server uptime, and RAM quantities, from companies like AWS, Dropbox, and Drive.
Tiered pricing differs from volume pricing in that volume pricing applies discounts across the board once a customer reaches a specific purchase volume.
This is in contrast to tiered pricing, which provides a discount only for units that are sold above a certain threshold. Prices vary according to the tier. Tiered pricing enables SaaS businesses to earn more per sale than businesses that use volume-based pricing.
As an example, we'll use both models with cloud storage. Assume your pricing ranges look like this:
Price per gigabyte (GB) per week
0-200 GB at
601- 1,000 GB
601- 1,000 GB
How much revenue would you make from a small business customer who buys 450 GB of storage per week from you?
Pricing on a tiered scale:
You will charge their first 200 GB at $0.020 ($0.020 x 200) = $4
The next 200-300 GB will be ($0.018 X 100) = $1.8
Followed by the next 300-400 ($0.016 X 100) = $1.6
The remaining 50 GB will take the cost of the 400-500 GB tier ($0.014 X 50) = $0.7
The total weekly revenue would be (4+1.8+1.6+0.70) = $8.10
Pricing based on volume:
The customer’s purchase is in the 400-500 GB range, so you’ll use $0.014 for all storage units ($0.014 X 450) = $6.3
The volume-based approach yields less revenues for the same storage volume. Your customer persona may be thrilled to save $1.8 dollars, so you could attract more customers than your competitor, who uses tiered pricing.
Companies like AWS use a combination of tiered and volume-based options for its Amazon S3 pricing. It is a complicated model that may be difficult to calculate for you and your customer, but it can be beneficial if you can.
Now you might wonder which features to include in each tier, how to tell if the price is too high, or if it is too low. Professionals in your field can advise you on how to set your SaaS pricing. Yet you can do even more by yourself.
Here are a few strategies we recommend you use for success:
This information is likely available in the product-market fit study you used to test your SaaS idea. A few aspects to consider include the buyer persona's budget, time of use, and features for the price.
An example will help. Many SaaS companies use a freemium or free trial-based model to draw people in.
The next tier, whether Advanced, Pro, ScaleUp, Growth, or something else, is usually the most comprehensive and includes the features that your customers need the most, which is why it is typically the most popular and generates the most revenue for the company.
Pricing your product at the most expensive level is an important way to set a premium reference point, boost your credibility, and allow buyers to consider the more affordable premium plan.
The next tier will become progressively more desirable as their needs increase and their growth accelerates.
There are simple ways to improve the more expensive tiers, including adding more features, technical support, and other quantifiable units.
Show how your services can help a customer achieve his or her goals for a fraction of the cost of hiring a full-time engineer, for example. Alternatively, you can show how you can save them time by automating tasks that would otherwise have cost far more to complete manually.
It's easy to see how the following image uses both checkmarks and clear added features to illustrate the value of higher plans over the cheaper options.
Although you don't want to replicate a competitor's pricing model, starting somewhere and then iterating as you collect more data and customer feedback might be a less overwhelming way to start.
Many SaaS companies, including startups to more advanced stage brands, do not track their unit economics and costs of goods sold (COGS) properly. Instead, they focus on maximizing revenue rather than gross margins.
The fact remains that gross margins do not increase as you scale. Unless, of course, you manage your cost KPIs now and use them to inform your SaaS pricing.
If, for example, you are unaware of your costs per customer, you will struggle to determine if you should review the pricing for a single tier or for all tiers.
You will also struggle to determine if you should offer a feature in a lower or higher tier if you don't know how much you spend to build, run, and support it. It will be very difficult to decide whether to offer an expensive feature as an add-on or as part of a tier.
In the same way, if you don’t know how long and how much a team project will cost, you will have difficulty deciding what to charge for your service, including technical support. It is even more challenging if you are using advanced systems like containers, Snowflake, and Kubernetes.
CloudZero gathers data from many sources, including Snowflake, Kubernetes, and multiple AWS services.
Our Cloud Cost Intelligence platform then analyzes your costs data and shows you how your cloud spend aligns to specific business outcomes, such as cost per feature, customer, project, team, environment, and more.
When you know how much you spend to support your services, you can more accurately set profitable pricing tiers instead of relying on gut feeling. to see how you can better price your SaaS products to improve customer retention, profitability, and competitiveness.
This blog post was written and reviewed by the CloudZero team. Combined, our team has more than a quarter century of experience in the cloud cost space. Every blog post is extensively researched and reviewed by several members of our team for accuracy and readability.
CloudZero is the only solution that enables you to allocate 100% of your spend in hours — so you can align everyone around cost dimensions that matter to your business.