Commerce Glossary

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What is Tiered pricing?

tiered pric-ing
noun
Is a pricing model used by merchants to sell their goods and services through specific price tiers. A tiered structure helps to increase the customers’ perceived value of your product and empowers them to choose the structure that best fits their needs. Tiers are different than packages, in that they provide additional incremental value on an increasing scale. For example, the lowest tier may offer one license and a limited amount of usage, whereas the next tier would provide five licenses and unlimited usage. A package, on the other hand, can include any combination of features or applications.

While the strategy of tiered pricing is to prove your value and scale customers up the tier as they grow, improving service quality with limited resources is never easy. Estimate your Annual Recurring Revenue (ARR) as precisely as possible – based on Customer Acquisition Costs (CAC), Client Lifetime Value (CLTV), expansion revenue, and churn – to determine what type of pricing tiers and packages you can sustain over the long term.

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