Introduction

Stair-step pricing is a variant of the usage-based model, where the price increments at specific usage levels instead of gradually. Based on the usage of a metric, a customer will be placed into a different pricing tier on a separate flat monthly fee.

Overview

PROS
  • Customers aren't as sensitive to usage, making adoption easier
  • works very well with a freemium model
CONS
  • customers may get upset when their bill suddenly increases after they transition to a higher usage tier

Breakdown of the Pros

Customers aren't as sensitive to usage, making adoption easier

Because the price of the product doesn't change immediately with additional usage, a company will be much more likely to adopt within the bounds of the tier they select, and more adoption means less churn. 

Works very well with a freemium model

A very common strategy with stair-step pricing is to say "First 10 Users Free" or some other value metric. This gives customers a way to "test the waters" before they pull the trigger on a widespread adoption.


Breakdown of the Cons

Customers may get upset when their bill suddenly increases after they transition to a higher usage tier

Because price jumps are going to be sudden and perhaps unexpected if no warning is given, customers can get very upset if their expenses suddenly increase, leading to a loss of trust and potential churn. 

Customer may feel "maxed out" at a certain adoption level since price changes are sudden and not gradual

If a customer is aware of how much they are using, they may feel that they cannot further adopt a product due to a cost increase, where as with a traditional usage-based model the price increases are incremental and not as painful.


WHO SHOULD USE IT

Stair-step works best when a company meets the following criteria:

  • Charge based on usage of a value metric
  • Using a feature-based model for specific buyer personas, for example, having different features for an enterprise customer vs. a startup
  • Have customers sensitive to price changes

Stair-step's primary purpose is to alleviate customers.


Implementation

Stripe has a volume-based pricing plan where different tiers can be defined based on quantity and flat fees.

The User Interface

Stripe has a volume-based pricing plan where different tiers can be defined based on quantity and flat fees.

SUBSCRIPTION MANAGEMENT
See Live Example

Examples

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