Tiered pricing
Tiered pricing is any model where the unit price changes as consumption crosses defined thresholds, so later units cost a different amount from earlier ones.
Tiered is the umbrella. How the tiers apply is the part that matters, and it splits into two behaviours that produce different invoices from identical usage: volume pricing and graduated pricing.
Getting the distinction wrong is one of the more common causes of invoice disputes, because both are described in contracts as simply tiered.
Common questions
- What is the difference between tiered and volume pricing?
Volume pricing is one form of tiered pricing. Under volume pricing the total quantity determines a single rate that applies to every unit; under graduated pricing each tier is charged at its own rate.
- Which is better, volume or graduated pricing?
Volume pricing rewards scale more aggressively and can cause an invoice to fall as usage rises past a threshold. Graduated pricing produces a smoother curve and never reduces the bill when usage increases. The choice is commercial, but it should be stated explicitly in the contract because both are commonly described as tiered.