Choosing a pricing formula is an important step when creating a pricing plan. The pricing formula will determine how the price is calculated and displayed on an invoice or receipt. Rebilly supports five types of pricing: fixed-fee, flat rate, stairstep, tiered, and volume. In this article, we will go over the definition of each formula with real-life examples to help you make the right choice for your business.
Fixed fee per time period
The fixed fee pricing formula is pretty simple and straightforward. the unit quantity is always 1, the price will remain the same, and only the time period will change. This would be appropriate for a subscription per week, per month, per year, etc.
For example, ‘Petflix’ - a dog movie streaming company - charges their customers $13.99 per month for 6 months to have full access to their dog movies database. The quantity of movie streamed at the end of the month does not affect the price paid - only the amount of time passed will.
Unit Quantity of 1 * Price per time period * # of Time Period = Final Price
Flat rate per unit
This pricing formula is also quite simple. It’s represented in a simple price per unit. Some examples of this would be $0.10 per transaction or $4 per apple.
Illustrated below, you will see Andrea buying 6 movie tickets for her family.
Unit Quantity * Price Per Unit = Final Price
The stairstep pricing formula is best used for units that are only sold in specific quantity. This can be best explained with the carton of eggs example. If Joey wants to buy four eggs, he has to buy a carton of six eggs. There is no option to buy four single eggs. If Joey wants to buy 7 eggs, he will have to buy a carton of 12 eggs.
Price per bracket = Final Price
The tiered pricing formula also works by brackets with some distinction from the stairstep and volume pricing. A good example of this in the business world would be user seat allocation for a CRM software. On a basic plan, you would be allowed to invite 3 users for a certain price. Any additional seat would be charged at a different rate. Let’s take a look at the following pricing table:
If I decide to buy 6 seats, here is how much each would cost based on the tiered pricing plan:
- Seat #1: $15
- Seat #2: $15
- Seat #3: $15
- Seat #4: $20
- Seat #5: $20
- Seat #6: $25
For a grand total of $110.
Price for the tier * Quantity within the tier) + (Price for next tier * Quantity in next tier, etc = Final Price
The volume pricing formula also works with quantity brackets but is much simpler than the tiered formula. It is simply the price for the quantity bracket * the number of units. This is a very popular formula in retail. In this example, Sam goes to the market to buy 6 apples. Let’s take a look at the following pricing table:
Here is how much each would cost based on the volume pricing plan:
- Apple #1: $3
- Apple #2: $3
- Apple #3: $3
- Apple #4: $3
- Apple #5: $3
- Apple #6: $3
For a grand total of $18.