Tiered Pricing
Tiered pricing is a pricing model in which the price per unit changes depending on the quantity purchased or consumed within a period.
Billing
Explanation
Two common variants:
• Graduated tiers: each tier has its own price, and units are charged at the price of the tier they fall into. For example, the first 1,000 units at one price and the next 4,000 at a lower price.
• Volume tiers: once a threshold is reached, all units are charged at the price of the highest tier achieved.
Tiered pricing is often combined with included volumes, minimum commitments, or caps, and it may reset each billing cycle or apply across a contract term.
Why It Matters
Tiered pricing makes charges dependent on total consumption, which may only be known at the end of a period or contract. Under ASC 606 and IFRS 15, this can create variable consideration and may require estimates, including assessments of whether future discounts represent a material right. In billing systems, accurate tiers require precise rating and correct aggregation of usage.
Related Terms
Rating · Usage-Based Billing · Variable Consideration · Material Right · Minimum Commitment
Related Solution:
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