Tiered pricing is a pricing model in which different rates apply to different portions of a purchase or usage total. Each rate covers a defined range, known as a tier.
What is tiered pricing?
In a tiered pricing model, the price changes when an order reaches a defined quantity or usage threshold. The new rate applies only to the units within that tier.
For example:
- First 100 units: $10 each
- Next 200 units: $8 each
- Units above 300: $6 each
For an order of 350 units, the calculation is:
(100 × $10) + (200 × $8) + (50 × $6) = $2,900
The blended price is approximately $8.29 per unit.
Tiered pricing vs. volume pricing
Tiered pricing and volume pricing handle thresholds differently.
Tiered pricing compared with volume pricing
| Model | How the price is applied |
|---|---|
| Tiered pricing | Each rate applies only to the units within its tier. |
| Volume pricing | One rate applies to the entire order after a threshold is reached. |
Under volume pricing, an order that reaches 301 units might receive the $6 rate on every unit. Under tiered pricing, only the units above 300 receive that rate.
This distinction should be clear in every sales quotation, price list and customer agreement.
How tiered pricing works in B2B sales
A seller first defines quantity thresholds and the rate for each range. The seller must also decide:
- Whether tiers apply per order or across a contract period
- Whether purchases from different locations can be combined
- When accumulated quantities reset
- How returns and partial deliveries affect the calculation
- Whether freight, duties or other charges are included
For distributors, tiers may reflect lower handling or purchasing costs at higher quantities. Manufacturers may use them when longer production runs reduce setup cost per unit.
Benefits and tradeoffs
Tiered pricing can reward larger purchases without lowering the price of every unit. It can also give buyers a predictable way to estimate how order size affects cost.
The model requires careful setup. Too many tiers make quotes harder to understand, while poorly chosen thresholds can encourage customers to change order quantities for pricing reasons rather than operational ones.
Best practices
Base thresholds on actual cost and order data. Define the calculation method in plain language and show buyers the quantity range covered by each rate.
Before introducing new tiers, recalculate a sample of previous orders. This shows how the proposed structure would affect revenue, gross margin and customer pricing.
If your team produces a high volume of line-item quotes, quotation software can keep product, pricing and customer information together when preparing each quotation.
