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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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Below is a concise approach based on the framework in our SaaS pricing book, Price to Scale:
Directly tie price to measurable value by selecting a usage metric that is both predictable and scalable. As described in Chapter 3 of Price to Scale, if the metric is predictable, you can make your pricing granular to match different usage levels.
Use a modular or block-based system. Our book highlights models like the cell-phone plan—where customers purchase blocks of usage with built-in volume discounts—as an effective way to incentivize higher consumption while ensuring revenue scales with each increment. Higher tiers offer lower per-unit rates, rewarding larger customers while still charging for additional usage.
Design clear tiers with defined thresholds. The tiered pricing structure should:
- Offer a visible discount at higher tiers, yet
- Ensure that every extra unit consumed is billed at the respective tier’s rate, so revenue grows as usage increases.
- Balance the volume discount against margin preservation. Price to Scale emphasizes the need to avoid "sawtooth edges"—where pricing inconsistencies can lead to revenue leakage. Carefully model your tiers so that discounts are attractive for volume customers, without compromising overall profitability.
In summary, to design tiered usage pricing where bigger customers receive volume discounts and revenue scales up with usage, identify a predictable and measurable usage metric, adopt a block or modular approach, set clear tier thresholds, and model your pricing to balance incentives with revenue capture. This ensures a scalable pricing model that benefits both your customers and your bottom line.