Pricing is a critical component of the buying process. The right pricing model helps companies stay profitable, attract the right customers, and create a reliable path for growth.

But, when a company has a diverse group of customers, a single price point can drive away buyers who don’t align with the offer or the cost.

  • Customers needing less than what a company offers might find the costs too high.
  • Customers needing more may feel that they’ve outgrown the offering and seek other solutions.

Fortunately, tiered pricing models can be used to meet customer needs by offering different terms, rates, and features at different prices. This is a common pricing strategy found across multiple industries, including SaaS, cloud computing, telecommunications, and more.

In this article, we’ll take a closer look at how tiered pricing works, how it compares to volume-based pricing, and how to build and deploy a tiered pricing model using data-driven insights. We’ll also cover some real-world examples and how to manage tiered pricing effectively using tools like PandaDoc CPQ.

Let’s hop in.

What is tiered pricing?

Tiered pricing is a complex pricing model where the price of a product or service is divided into levels or “tiers.” Each tier represents a specific range of usage, quantity, or features. As customers move up the tiers, they gain access to additional functionality or higher limits in exchange for higher costs.

This structure helps businesses serve a wider range of customers by moderating their product offering. Smaller buyers can choose entry-level plans that fit their budget while larger clients can move into higher tiers that deliver additional value.

Tiered pricing makes it easier to appeal to different market and customer segments without having to create entirely separate products or services. That’s especially important for brands aiming to reduce churn and keep customers for an extended period, as higher tiers offer a path for advancement as smaller businesses grow beyond basic features and plans.

How tiered pricing works

Tiered pricing works by dividing a product or service into defined levels, with each offering a different amount of value. Every tier includes a set of features, usage limits, or service levels that correspond to that specific price point. Customers can then choose the option that best suits their needs and budget.

If this sounds familiar, it’s because you’ve probably seen it before. If not, check out the PandaDoc pricing page for a live example!

A software company might offer a “Basic” tier for smaller teams, a “Professional” plan with advanced features for growing businesses, and an “Enterprise” plan with custom-built solutions for large organizations. As customers upgrade, they gain access to additional features or higher capacities.

This model gives brands flexibility in how they charge while helping customers get a clear understanding of costs and value. Tiered pricing also creates a natural pathway for upselling, as incentives and business growth will drive customers toward higher tiers over time.

What are tiered pricing models?

Depending on what a business aims to sell, tiered pricing can take a variety of forms. Some models focus on a set number of tiers offered while others base pricing on usage levels or specific features.

Each approach provides a different balance between simplicity and flexibility, but the right model depends on the product, market, and customer behavior. Below are some of the most common ways companies design pricing tiers.

Three-tier pricing

The three-tiered pricing model is one of the most recognizable and effective structures for SaaS brands. Typically, this approach includes a basic, mid-range, and premium plan, with each tier offering more features or greater value at a higher price point.

This layout is popular because it helps customers make quick comparisons during plan selection. The entry-level options attract budget-conscious buyers while the top-tier plan serves a custom solution with the most complex feature set.

Because this model follows the “good, better, best” mentality when it comes to pricing philosophy, customers inherently understand the model and the perceived value at each threshold. As a result, most customers end up in the middle tier, where the mix of features and costs is most comfortable.

Multi-tier pricing

While a three-tier structure is the most common, some companies offer extra flexibility by offering additional tiers in their pricing model. Taking this approach allows for additional segmentation opportunities. Brands can accommodate different customer groups or product variations and can impose additional restrictions around usage.

This approach is more useful to companies with wide target markets, such as SaaS platforms that serve both individuals and enterprise clients. For example, Salesforce Service Cloud offers five separate pricing tiers, and the Salesforce brand as a whole offers multiple pricing options across its family of products.

However, the challenge with multiple tiers is communication. Too many choices can overwhelm buyers, so it’s important to keep the offering clear and distinct in order to retain clarity across different pricing tiers.

Usage-based tiers

In a usage-based model, pricing is tied directly to how much of a product or service a customer consumes. Rather than charging a flat rate, businesses create pricing tiers based on measurable activity or product consumption, such as an amount of data used or the number of API calls made within a certain time period.

This approach is commonly used in cloud computing and telecommunications. For example, Twilio charges customers based on how many messages, calls, or API requests they send through the platform. Each SMS has a per-message cost, and the rates change depending on monthly volume or destination.

Usage-based tiers work well in these scenarios because they align cost with value. Customers feel that they’re paying for what they actually use, and companies maintain predictable revenue as users scale over time. However, customers who are looking for more value-based pricing options might feel as though they’re being nickel-and-dimed for usage.

Feature-based tiers

A feature-based approach divides products and services based on functionality. Each tier unlocks additional tools, integrations, or benefits as a means to justify a higher price.

For example, Adobe’s Creative Cloud offers dozens of feature-based plans tied to specific creative tools. Users can buy a single-app license (Photoshop only, Illustrator only, etc.), or a full suite that unlocks every app and additional collaboration tools.

Feature-based structures give a clear way for brands to communicate increasing value. Customers can clearly see what they’re getting at each level and decide whether the added features are worth the investment.

Tiered unit pricing vs tiered pricing vs volume pricing

Tiered pricing often gets confused with other pricing solutions like tiered unit-based pricing and volume pricing. All three approaches reward customers for buying more, but the difference lies in how those rewards are calculated and the value proposition found in each pricing model.

These pricing solutions can get confusing if you aren’t already familiar with them. Below, we’ll take a closer look at each pricing option and how costs break down in each format.

Calculating tiered plan pricing

In tiered plan pricing, customers choose from preset plans, with each plan offering different features or value at varying costs. Pricing is determined by a mix of value and features, not units or volume.

Example: A software company offers three plans:

  • Starter: $25/month for basic tools.
  • Professional: $50/month for automation features.
  • Enterprise: $100/month for API access.

A small business might begin with the Starter plan to manage a few projects, then upgrade to Professional as the team grows and needs more automation. The plan price reflects the offered features and perceived value, not how many units that a customer purchases. Typically, plans are also charged by seat, so customers will need to pay more for the plan they want and then multiply that by the number of users on that plan.

This is a common approach in SaaS companies and subscription businesses because it lets companies serve multiple customer segments without creating custom offers. Customers can scale up or down based on their needs while businesses earn more by selling additional seats on the most desirable plans.

Calculating tiered unit pricing

In tiered unit pricing, the price per unit changes at different thresholds. All customers start at the same baseline, and discounted rates apply only to products that fall within the next tier.

Example: A cloud storage provider charges based on the following usage:

  • $0.25/GB for the first 100 GB.
  • $0.20/GB for the next 400 GB.
  • $0.15/GB beyond 500 GB.

If a customer uses 600 GB in a month, their bill would break down as follows:

  • 100 GB × $0.25 = $25
  • 400 GB × $0.20 = $80
  • 100 GB × $0.15 = $15


Total Cost: $120

The customer doesn’t get a flat $0.15/GB rate for all 600 GB. Instead, each portion of usage is billed at a rate that applies to its tier. This approach rewards customers for scaling usage without reducing the overall value of the product itself.

While tiered unit pricing is common in cloud computing, telecommunications, and API-based platforms, it requires a scenario where low-cost products are used in high volumes. In order to be effective, the cost per unit has to be low enough that customers are likely to climb into different pricing tiers through regular usage.

Calculating volume-based pricing

With volume-based pricing, discounts apply to the entire purchase once a quantity threshold is met. Unlike tiered unit pricing, the lower price covers every unit in that transaction.

Example: A wholesaler offers:

  • $10 per unit for orders under 100 units.
  • $8 per unit for orders of 100–499 units.
  • $7 per unit for 500 or more units.

If a customer buys 500 units, they pay $7 for each one, totalling $3,500. However, after a purchase is complete, any discounts are reset and discounts earned for past transactions won’t apply.

This approach works best for bulk or one-time purchases, especially in manufacturing or retail. It’s simple for buyers to understand and encourages large orders, but it’s less flexible for ongoing or recurring use.

Why use tiered pricing plans?

Overall, tiered pricing enables businesses to give extra flexibility and choice to its customer base.

Rather than operating from set pricing, a tiered pricing structure allows for brands to offer different levels of features and incentivize both new customers and long time users to upgrade based on self-assessment. This results in greater customer satisfaction and decreases churn, as buyers can pay for the level of service they need at a price that aligns with their budget and needs.

That being said, tiered pricing isn’t perfect, and has a few drawbacks. Here’s a closer look at both the positives and negatives inherent to this pricing model.

Benefits

  • Reaches different customer segments. Tiered pricing allows brands to serve a wide range of customers without fundamentally changing the core product. Entry-level plans attract smaller, diverse customers while premium options appeal to organizations requiring advanced tools and support. By offering multiple price points, rather than a single, set price, tiered pricing creates a path for every type of customer to engage with the brand.
  • Encourages upgrades and long-term growth. By offering an advancement path for existing customers, companies can cut down on acquisition costs. If a customer on a basic-tier plan grows to the point where they need additional features, it’s easy for them to step up to the next tier. This creates a win-win scenario where the customer receives more functionality from a software they already know how to use, and the company experiences revenue growth through a means other than new customer acquisition.
  • Simplifies the purchasing decisions. When structured clearly, potential customers will be able to compare tiered pricing options side by side and quickly identify the plan that best suits their needs. Rather than calculating usage-based pricing or trying to work out usage metrics, business owners can pick a solution that balances cost with features.
  • Builds predictable, recurring revenue. For SaaS businesses and other subscription-based platforms, tiered pricing provides more consistent revenue. Each tier delivers a stable, recurring payment that’s easier to forecast than one-off sales. Customer payments don’t fluctuate based on usage levels, and profit margins are more clearly defined.
  • Supports value-based pricing. Because each tier is based on provided features, it’s much easier for customers to understand the value beyond perceived costs and potential discounts. Premium features — locked behind high tiers — are seen as more valuable and used as a means to justify pricing levels.
  • Leaves room for incentivization. Tiered pricing models still leave room for upselling with special offers. Companies might discount the first month of a higher-end plan (or use it as part of a free trial) or offer discounts for annual subscribers. These tactics help to drive conversions without devaluing the product at lower tiers.

Drawbacks

  • Can cause choice overload. If customers see too many options or unclear differences between tiers, they may delay purchasing decisions or default to a cheaper plan. A focused, well-organized pricing layout (ideally created from extensive market research) can help to reduce friction and keep choices clear across multiple buyer personas.
  • Risk of misalignment. If the value between tiers isn’t distinct, customers might feel that premium tiers simply aren’t worth the cost. At the same time, if lower tiers offer too much value, upgrades become harder to sell. Companies need to maintain an appropriate balance of features and value across all plans.
  • Pricing offers require constant monitoring. Tiered pricing isn’t a “set it and forget it” strategy. Market conditions, competitor pricing, and customer expectations change over time. Reviewing performance data and customer feedback helps to keep each tier relevant and profitable.
  • Causes confusion if tiers aren’t clearly explained. Customers should immediately understand what is and isn’t included in each plan. If descriptions are vague or overly technical, customers may not understand the value or may choose the wrong plan. Side-by-side feature tables and comparison charts, like the one seen on the PandaDoc pricing page, can help to clarify these issues.

Examples of tiered pricing

1. PandaDoc

At PandaDoc, we use a three-tiered pricing structure (not counting the free plan), each aimed at specific market segments and team sizes.

  • Starter provides core document creation and e-signature tools, making it a great fit for individuals and smaller organizations.
  • Business adds workflow automation, CRM integrations, and content management features. It’s a better fit for teams and comes with advanced features to provide additional flexibility.
  • Enterprise includes advanced security, API access, custom user roles, and more. These plans are built with the help of our sales team and are tailored to individual customer needs.

Notably, you can spot a fair amount of overlap between the Business and Enterprise plans, as several Enterprise-level features are available as add-ons for the Business plan. This approach allows Business plan users who need some Enterprise features to flex those into their plan on a case-by-case basis.

Overall, this approach gives team of all sizes an affordable point of entry while still offering advanced capabilities for larger teams.

2. HubSpot

HubSpot’s pricing uses a feature-based model with multiple pricing tiers for each module (Smart CRM, Marketing, Sales, etc.). Teams can select which module makes the most sense for them, then consult the pricing tiers before making a final purchase.

  • Most HubSpot modules have two pricing tiers: an entry-level and a pro-level solution.
  • Customers can select individual products or create custom product bundles to make an all-in-one package.
  • Some solutions, like the Marketing and Service modules, also split plans between two customer segments: businesses/enterprise and individual/small teams.

With HubSpot, many of these modules stack and integrate with one another. Customers using multiple HubSpot products will enjoy better data sharing and synchronization across their tech stack.

However, while many options are available, HubSpot’s plans and solutions aren’t as straightforward as more standardized pricing tiers and models.

3. Zoom

Similar to PandaDoc, Zoom uses a three-tiered pricing structure for its Workplace bundle, which includes meetings, team chat, mail, and a calendar.

  • Pro is meant for personal use and offers meetings with 100 participants. Users also get access to document editing, video clip creation, a mailbox, and more.
  • Business upgrades the number of meeting participants to 300, adds a meeting scheduler, and includes a whiteboard feature, along with some additional functionality.
  • Enterprise requires a conversation with the sales team but allows for 1000 participants per meeting, as well as rooms, workspace reservations, meeting translations, and more.

With Zoom, the Workplace bundle is designed as the core product and serves as a foundational starting point. When selecting from one of these pricing tiers, it’s possible for companies to get everything they need in one purchase.

However, a la carte options are also available. Customers who want features like video clips or a meeting scheduler can also buy those solutions separately. While this is helpful to customers on lower-tier solutions (where these features aren’t available), it’s primarily used as a way to nudge users to a higher-tier plan, as the price difference for the Pro plan with a standalone add-on is enough to justify the cost of the Business plan.

4. Adobe Creative Cloud

Adobe Creative Cloud uses a combination of audience segmentation and feature-based pricing. Rather than having one set of stacked tiers, Adobe separates pricing by use case: individuals, businesses, students and teachers, and educational institutions.

  • Individuals can subscribe to single apps like Photoshop or Illustrators or purchase the Creative Cloud Pro plan, which includes 20+ apps, cloud storage, and generative AI credits.
  • Businesses have different plan options, and pricing is generally more expensive, but plans come with license management and improved technical support options.
  • Students and teachers enjoy massive (60%+) discounts on the Creative Cloud Pro plan, but eligibility checks limit the scope of the plan to qualified individuals.
  • Educational institutions are similar to Business plans in that they offer licensing solutions on a per-student and institution-wide basis, but they do so with discounted pricing.

Similar to HubSpot, this method relies on customers self-identifying and selecting plans based on use-case and qualifications. Especially at the individual tier, pricing is designed to push users toward the Creative Cloud Pro plan for a more all-inclusive experience.

While it’s somewhat hidden, Adobe also offers a few unique bundle packages for niche users and markets. For example, individual users can pick up the Photography plan, which features Photoshop and Lightroom, for $20/month or the Acrobat Studio bundle for $25/month. These bundles target specific subsegments of the Adobe user base and allow affordable access to key software products.

5. QuickBooks Online

QuickBooks Online uses a four-tier pricing structure that scales by functionality rather than usage. Each plan is built to align with business size and accounting complexity, with specific user limitations and features offered at each level.

  • Simple Start automates bookkeeping and offers a single user seat.
  • Essentials offers three seats, recurring invoices, and unique AI features.
  • Plus includes budgeting and anomaly detection, while bumping the seat count to five.
  • Advanced includes 25 users, custom reports, data syncing with Excel, and more.

Each tier adds tangible value, so users can grow without switching platforms. Similar to PandaDoc’s approach, QuickBooks offers optional add-ons like payroll and time tracking that extend functionality on their own, rather than forcing users to upgrade plans.

How to create profitable pricing tiers

Building an effective tiered pricing strategy is about more than choosing three plan names and setting prices. It requires thoughtful planning, consistent testing, extensive market research, and the right tools to keep everything aligned with your business goals.

While the journey to creating a holistic pricing model is different for every organization, here’s a brief overview of the steps teams should take to build pricing tiers that attract customers and reflect value.

Strategic planning & research

A great starting point for existing businesses is market research.

Understand who uses the product and what they value the most. Segment your existing audience based on usage patterns, company size, or purchasing behavior. The more you know about the different personas and groups that use your product, the easier it becomes to design tiers that fit their needs.

Next, study any existing competitors. Review how they structure their pricing, what features are tied to each plan, and how they position their middle tiers. Research what customers complain about and where any current policies cause friction with buyers. Once you know that, include that in one of your tiers, or — if it’s valuable enough — offer it across all tiers and price points.

Example: Docusign is a direct competitor to PandaDoc in the e-signing space.

One of the biggest drawbacks to using Docusign are their annual envelope limits. Customers paying $60/month can only send 10 documents per signature each month and sends are capped at 100 per year. That’s a huge obstacle for high-volume senders, because Docusign will charge additional fees for customers who exceed those usage caps.

At PandaDoc, we offer truly unlimited sending with no usage restrictions. Customers can send as many documents as they want and collect as many signatures as required along the way. It’s a notable incentive for users frustrated with Docusign’s usage caps, and it’s a huge differentiator for users who are considering a switch from Docusign to PandaDoc.

Once you’ve done the research, take the time to define the metrics that best reflect how customers use the product. This could be users and seats, total storage space, dedicated number of projects, or total number of transactions in a set period.

Once you have those metrics and the features that customers are most likely to value, it’s much easier to bring that together in a way that makes pricing feel fair and easy to understand.

Design and structure

Once you know your customers and competitors, it’s time to map out your tiers. Three to five tiers is usually ideal, but remember that each tier should offer enough variety to meet different needs without overwhelming buyers.

Start with an accessible, entry-level plan that lowers the barrier to entry, followed by one or two middle tiers that deliver a strong balance of value and price. Top tiers are typically reserved for premium features and custom configurations, leading many companies to require a conversation with a sales rep in order to build the right solution.

If you’re serving a broad market with multiple customer types (individuals, businesses, educators, etc.), you might also consider creating tiers for each customer profile. This is a multi-tier strategy, but it can work if the tiers are separated from one another and user direction is clear.

Example: Adobe Acrobat Sign offers a total of eight separate pricing tiers split across three categories: individuals, business, education.

To keep things clear and more easily defined, the Acrobat Sign pricing page is divided into three separate tabs, and the associated plans are assigned to that tab. Customers visiting the page will self-select their own category and can quickly find pricing based on their use case.

Docusign does this on a smaller level by offering dedicated plans and pricing for real estate agents and web developers (seen at the tabs near the top of the pricing page).

Lastly, be thoughtful about how you name and describe each tier. Clear, benefit-focused labels like “Starter,” “Professional,” or “Enterprise” will help customers understand progression at a glance. In the main table, keep feature lists precise (or redirect to a dedicated feature table) and emphasize the key differentiators between plans.

Optimization and testing

Pricing isn’t static. The best-performing tiered pricing structures are refined through data and experimentation. Track which tiers attract the most signups, upgrades, or cancellations, look for patterns and customer movement.

A/B testing can help you experiment with plan names, price points, and feature groupings. Through testing, you might find that a small price increase on a mid-tier plan doesn’t affect conversions or that bundling a specific feature drives additional upgrades. You might even choose to release specific features for free as a means to outperform competitors.

Example: The PandaDoc Free Plan is a perfect fit for startups and small businesses who need e-signing functionality but not document editing. The plan allows teams to send up to 60 documents per year at no charge, far exceeding DocuSign’s free plan, which allows for a maximum of three lifetime sends.

Regular reviews also help companies adapt pricing tiers to market shifts. If competitors introduce new pricing models, or if customers request different plan combinations, tiers may need to be adjusted in order to stay relevant and profitable.

This is a continuous process, and one that teams should revisit on a regular basis to assess performance, customer feedback, and market conditions. Consistent monitoring keeps pricing strategies flexible and helps brands stay aligned with customer expectations.

Implementation tools

Once your pricing strategy is finalized, teams can take steps to put it into action. Implementation tools can help to manage pricing consistently with proposals, quotes, and customer conversations. Without a central system, it’s easy for sales reps to quote outdated pricing or make manual errors that affect margins.

CPQ (configure, price, quote) solutions can solve for this by giving your team access to approved pricing data and prebuilt configurations for each tier. Rather than manually calculating costs or hunting through spreadsheets, reps can build accurate quotes in minutes.

Example: A sales team using Pandadoc CPQ can create a product list that includes all predefined plans, along with optional add-ons and custom terms.

During discovery calls, reps can assess a customer’s needs, then quickly select the appropriate plan for the buyer. The plan and any selected add-ons are added automatically to the pricing table, and the quote can be finalized with a few clicks.

This approach helps reps move faster while keeping pricing consistent with company standards.

Implementation tools can also improve visibility across teams. Working from a product catalog, finance and operations can all see the same, real-time pricing data, further reducing the risk of confusion when promotions, add-ons, or feature changes are introduced. Reporting tools make it easy to track which plans customers choose most often and how discounts affect margins.

In many cases, selection can even be automated by allowing users to self-select and pay for plans directly from a website pricing page and cart/checkout option. A key benefit of tiered pricing is the consolidation of product bundles to easily parsable, single product selections. When deployed correctly, customers can easily see what they should receive at each tier and can make selections without additional customer support.

Custom quotes for tier-based pricing with PandaDoc CPQ

Building an effective tiered pricing strategy is only part of the process. To bring everything together and deploy tiered options in real-world applications, teams need a smarter way to quote, customize, and deliver. While self-serve options play a role, solutions like PandaDoc CPQ are essential when customizing pre-built pricing tiers.

With PandaDoc CPQ, sales teams can configure product tiers, add optional upgrades, and apply discounts directly within a dynamic pricing table. As reps guide enterprise-level customers through unique plan features, they can include add-ons as part of the quote and let the system handle cost calculations and document formatting automatically.

These systems also integrate with popular CRMs and can be configured with flexible approval workflows, so quotes move seamlessly from configuration to e-signature. Teams can track which tiers customers choose most often, identify key upgrade opportunities, and adjust pricing strategies based on real sales data. Plus, for brands serving multiple market segments, PandaDoc CPQ makes it easy to manage complex pricing in one place.
Ready to simplify your quoting process and make it easier for reps to build and manage custom solutions? Sign up with PandaDoc for a free 14-day trial or get a live demo from a product expert!

Disclaimer

PandaDoc is not a law firm, or a substitute for an attorney or law firm. This page is not intended to and does not provide legal advice. Should you have legal questions on the validity of e-signatures or digital signatures and the enforceability thereof, please consult with an attorney or law firm. Use of PandaDoc services are governed by our Terms of Use and Privacy Policy.