Volume discounting reduces per-unit prices when customers buy larger quantities, with businesses offering 5–25% discounts across tiers. According to recent Chargebee research, 51% of companies now combine subscription with usage-based models. It includes three main types: tiered pricing (different rates per tier), volume pricing (single rate for total quantity), and package pricing (discounts for specific bundles).
Types of Volume Discounting
Tiered model
All units (or) Volume model
Package model
Tiered pricing vs. volume pricing differences
Tiered and volume pricing models are overlapping terms that are often used interchangeably. The fundamental difference is how you calculate the final price. Each model interprets the pricing structure differently.
Tiered and volume pricing models are overlapping terms that are often used interchangeably. The fundamental difference is how you calculate the final price. Each model interprets the pricing structure differently.
Even though both seem to be the same in hindsight, the accumulated costs in the end are where the difference lies. To sum it up:
Tiered model: The price per unit you're selling is within a particular price range. Once you fill up one tier you move to the next.
Volume model: The price of all the units you're selling is within the set price range.
Now, let's see how these calculations work.
Tiered vs. volume pricing structure
Here's how pricing differs between tiered and volume models using a 60-unit purchase:
Tiered pricing fills each tier before moving to the next, while volume pricing applies a single rate based on total quantity.
What Are the Benefits of Using Volume Discount Pricing?
Volume discounts work by reducing unit prices as purchase quantities increase, encouraging larger orders while maintaining profitability through economies of scale. SaaS businesses particularly benefit because digital products have minimal marginal costs per additional user.
Key benefits for RevOps teams include:
Competitive advantage: Strategic pricing that captures market share
Customer acquisition: Attractive pricing tiers that draw larger prospects
Revenue growth: Higher deal sizes and improved cash flow
Competitive Market Positioning
Volume discounts give you a competitive advantage by offering better value at scale. A well-structured pricing strategy with volume tiers attracts enterprise buyers who expect bulk savings.
Strategic discounting increases your market share while maintaining product value perception.
2. Attracts a Larger Customer Base
In your pricing strategy and promotions, volume discounting is a key concept. Using quantity discounts with a suitable package plan creates affinity for your brand. This approach attracts customers by meeting their needs effectively.
3. Encourages Your Customers to Buy More
Offering volume discounts encourages your customers to buy your product in bulk. Sometimes they might choose plans which they might need in the future because it's affordable and will be useful as they scale. This, in turn, helps you generate more cash flow
The Ultimate Guide to Revenue Operations See how you can drive efficiency into your RevOps with our extensive guide.Get the Guide
How to Calculate Volume Discounts
Tiered pricing calculations
In a tiered model, you calculate the cost for each tier separately and add them together. For example, if you sell 150 units where the first 100 cost $10 each and the next 50 cost $8 each, the calculation is (100 × $10) + (50 × $8). The total cost would be $1,400.
Volume pricing calculations
In a volume model, the price for all units is determined by the tier the total quantity falls into. Using the same example, if the price for buying 150 units is $8 per unit, the calculation is simply 150 × $8. The total cost would be $1,200.
ROI impact on your business
Calculating the return on investment for volume discounts requires balancing increased sales against lower margins. You must ensure the higher purchase volume compensates for the reduced per-unit revenue. This helps maintain profitability while encouraging larger customer orders.
Legal and Compliance Considerations
Volume discount regulations
Volume-based discounts are legal as long as they are applied consistently to all similar customers. Pricing structures must not be discriminatory. Businesses must be prepared to justify the discounts based on cost savings from economies of scale.
Fair pricing practices
To ensure fairness, your discount schedule should be transparent and accessible to all customers. Avoid offering special, undocumented discounts to select clients, as this can create legal risks. Consistent application is key to compliance.
Documentation requirements
Maintain clear internal documentation that outlines your volume discount policies, tiers, and the business justification for them. This record is critical for financial audits and for demonstrating fair pricing practices. It ensures your finance and sales teams operate from a single source of truth.
Examples of Volume Discounts
1. Tiered pricing:
Confluence is a content collaboration tool that helps teams to work together. Look how they've implemented the tiered discount structure for their product. They charge $5 for the first 100 users and from the 101th user they charge $4 and so on.
2. Volume pricing:
Sketch is a design toolkit that helps you create your work from start to finish. They use a volume pricing model to price their product, so the more devices you want to buy the license for, the less you pay.
3. Package pricing model:
Package pricing is similar to that of tiered pricing model, but the difference between the two is that businesses offer a discount for specified number of units. The discounted price usually increases with the volume bought.
This is how the product is priced and discounts are offered. If you buy in larger quantities the prices are discounted. Suppose in a packaged pricing model you need to buy six widgets; you would pay the cost for five widgets and the full price for the other one widget. Therefore, your total price is calculated like:
For the first five widgets, your cost is $900 and for the other one widget your cost is $200, thereby your total cost being $1100 ($900+$200).
How to Set Up Volume Discounts
Setting up discount tiers
First, define the quantity thresholds for each discount level. Analyze customer purchase data to set tiers that are both attractive to buyers and profitable for your business. The goal is to find the sweet spot that encourages higher volume purchases.
Billing system requirements
Your billing system must be able to automatically apply the correct discount based on the quantity purchased. Manual application is prone to errors and does not scale as your business grows. A flexible platform is necessary to manage different discount models.
Customer communication strategies
Clearly communicate your volume discount structure on your pricing page and in sales proposals. Ensure customers understand how they can save money by purchasing more. Volume discounts require flexible billing infrastructure that can handle complex pricing models without engineering overhead. See how Chargebee helps you monetize with confidence — book your personalized demo today.
Understanding the Psychology Behind Volume Discounting
Volume discounts work best when used strategically rather than frequently. Overuse can devalue your product in customers' minds, especially for SaaS businesses where value isn't tied to physical goods.
Key risks include:
Price anchoring: Customers expect discounts to become the new standard
Margin erosion: You need 38% more sales volume to offset a 5% price reduction
Brand devaluation: Frequent discounts signal quality concerns
Disadvantages of Volume Discounting
1. Lowered price value: Once you lower your price to satisfy your customer, the lowered price of your product sets the new standard for your product price. Things might not go well with your customers if you suddenly need to increase your prices in the future to suit the ever-evolving business needs.
2. Profit loss: By offering volume discounting frequently you put your business at a loss. For every 5% reduction in price, you need to sell 38% more to ensure your profitability does not decline.
3. Product devaluation: Every time you offer a reduced price, you risk reducing the perceived value of your product. They might think that the discounts are offered as the quality of the product is poor and diminishes your brand value in their eyes. It is crucial to ensure that your customer associates quality with your product and brand.
