Tiered pricing strategy - definition, examples and benefits

A tiered pricing strategy effectively monetizes APIs and digital products by packaging them into fixed-cost bundles with varying features, encouraging customer progression through the tiers as usage increases. This approach, common in SaaS products, simplifies billing and provides predictability in costs but requires careful planning to avoid friction from price jumps and to ensure customers perceive value at each tier. While tiered pricing offers clarity and ease of implementation, it may lack flexibility and personalized pricing, potentially leading to revenue loss if mispriced. In contrast, the pay-as-you-go (PAYG) model offers billing based on actual usage, reducing friction by aligning costs directly with consumption and providing a familiar payment structure. Both models have distinct benefits and drawbacks, and choosing between them depends on the product type and business goals.