.png)
Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
In the competitive SaaS landscape, your pricing strategy can make or break your business. Two popular approaches often considered by SaaS executives are volume pricing and flat discounts. But which one is actually better for your bottom line and customer relationships? Let's dive deep into both pricing structures to help you make an informed decision for your SaaS company.
Understanding Volume Pricing in SaaS
Volume pricing, also known as quantity-based pricing, is a pricing model where the per-unit price decreases as customers purchase larger quantities. This approach is rooted in the economic principle of economies of scale.
For SaaS businesses, volume pricing typically manifests in three primary ways:
- User-based volume pricing: The per-user price decreases as more users are added to an account
- Feature-based volume pricing: More extensive use of certain features comes at a reduced per-unit cost
- Transaction-based volume pricing: Higher transaction volumes result in lower per-transaction fees
According to a study by Price Intelligently, companies implementing effective volume pricing strategies see an average 30% higher lifetime customer value compared to those with single-price models.
The Rise of Tiered Pricing in SaaS
A sophisticated form of volume pricing, tiered pricing divides customer usage into distinct brackets, with each tier offering a lower per-unit price.
Here's a simplified example of a tiered pricing structure for a project management tool:
- Tier 1: 1-10 users at $15/user/month
- Tier 2: 11-50 users at $12/user/month
- Tier 3: 51-100 users at $9/user/month
- Tier 4: 101+ users at $7/user/month
OpenView Partners' SaaS Pricing Survey found that 61% of successful SaaS companies utilize some form of tiered pricing, making it one of the most common pricing structures in the industry.
The Traditional Flat Discount Approach
In contrast, flat discounts offer a straightforward percentage reduction off the standard price. These discounts are typically offered for:
- Annual payment commitments
- Enterprise deals
- Strategic partnerships
- Special promotions
A common example is the "pay annually, get two months free" offer (essentially a 16.7% discount) that many SaaS providers use to incentivize longer commitments.
Comparing the Strategic Impacts
Volume Pricing Advantages
Encourages growth within accounts: Since additional usage costs less per unit, customers are incentivized to expand their usage over time.
Aligns with customer value perception: As customers scale their usage of your product, the incremental value they derive often decreases, making volume pricing feel fair.
Creates predictable expansion revenue: According to research by Profitwell, companies with effective volume pricing models see 20-30% higher expansion revenue compared to those using flat discounts exclusively.
Works well with usage-based models: For SaaS companies adopting usage-based pricing, volume pricing provides a natural complement that rewards higher consumption levels.
Flat Discount Advantages
Simplicity and clarity: Customers understand exactly what they're getting and how much they're saving.
Effective for closing deals: Sales teams can use discretionary discount authority to overcome price objections.
Good for cash flow management: Annual prepayment discounts improve cash position and reduce churn risk.
Easier implementation: Requires less sophisticated billing systems compared to complex volume pricing models.
What Real-World SaaS Companies Are Doing
Many successful SaaS companies blend both approaches. For example:
- Salesforce employs tiered volume pricing based on user counts while also offering flat discounts for annual commitments
- HubSpot utilizes volume pricing for its marketing contacts while offering flat discounts for annual payments
- Slack implements a user-based volume pricing model with declining per-user costs alongside enterprise discount programs
According to Paddle's SaaS Pricing Survey, 68% of the fastest-growing SaaS companies use some combination of volume pricing and situational flat discounts.
Making the Right Choice for Your SaaS Business
When deciding between volume pricing and flat discounts, consider these factors:
When Volume Pricing Works Best
Volume pricing is particularly effective when:
- Your costs decrease significantly at scale
- Customer value grows with increased usage
- You want to encourage account expansion
- Your target market includes organizations of varying sizes
- You're implementing a usage-based pricing model
When Flat Discounts Work Best
Flat discounts tend to work better when:
- Your product has a standardized value proposition
- Your primary goal is improving cash flow through prepayments
- Your sales process benefits from negotiation flexibility
- Your billing infrastructure is relatively simple
- Your market expects straightforward pricing transparency
The Hybrid Approach: Getting the Best of Both Worlds
For many SaaS executives, the most effective strategy is combining both pricing mechanisms:
- Implement a tiered pricing structure based on usage volume (users, features, or transactions)
- Layer in flat discounts for behaviors you want to encourage (annual payments, longer contracts)
- Reserve special flat discounts for enterprise deals and strategic partnerships
- Test and measure the impact of your pricing decisions
According to OpenView's Product Benchmarks Report, SaaS companies that effectively implement hybrid pricing strategies show 23% higher growth rates than those using a single approach.
Implementation Considerations
Before rushing to implement a new pricing structure, consider:
- Billing system capabilities: Volume pricing often requires more sophisticated billing infrastructure
- Grandfathering policies: How will you handle existing customers?
- Communication strategy: Clearly articulate the value of your pricing approach
- Competitor positioning: How does your pricing compare in the market?
- Customer feedback: Test proposed changes with key customers
Conclusion: Making Data-Driven Pricing Decisions
The choice between volume pricing and flat discounts isn't binary. The most successful SaaS companies develop pricing strategies that reflect their specific business models, customer needs, and market positions.
Start by analyzing your customer data to understand usage patterns and price sensitivity. Then, design a pricing structure that incentivizes the behaviors that drive both customer success and your revenue growth.
Remember that pricing isn't a one-time decision but an evolving strategy. The most successful SaaS companies regularly review and refine their approach based on market feedback and performance data.
What's your experience with different pricing models? Have you found volume pricing or flat discounts more effective for your SaaS business?