Should we implement overage charges when users exceed a certain included amount of usage, or automatically move them to the next plan tier when they go over limits?

Based on our saas pricing book Price to Scale, the recommended approach is to use overage charges that are deliberately set higher than the per unit cost within the plan. Here’s why:

• It acts as a nudge: By pricing overages at a rate that's less attractive than the embedded bundle rate, you signal to customers that upgrading to the next tier is more cost-effective than paying for overages.

• It preserves customer choice: Rather than automatically moving users to a higher tier— which may feel abrupt or inflexible—overage fees provide an economic incentive for customers to proactively upgrade once they exceed their limits.

• It balances revenue and customer retention: When overage fees are designed correctly, you can capture additional revenue from heavy users while simultaneously guiding them toward a plan tier that better matches their usage patterns.

As discussed in Price to Scale (see the sections on overage pricing and Elite Pricing examples), setting overage pricing higher than the average unit price helps drive customers into higher-value packages without forcing an automatic change. This approach maintains clarity in pricing and ensures that customers are aware of their options.

In summary, instead of automatically moving users to the next plan tier, implementing well-designed overage charges is generally recommended to encourage plan upgrades more naturally.