Usage-based pricing might get all the buzzword love these days in the B2B SaaS community, but whether you're implementing metered billing or exploring other options altogether, it's worth it to consider one of its most powerful sidekicks: bulk pricing, AKA volume discounts.
This approach, as the name implies, encourages customers to buy in bulk, which typically comes with all the benefits you'd expect, such as larger ACV, but can also include some other surprising outcomes, both positive and negative. So before you rush to sign your SaaS company (and all your future customers!) up for a volume discount model, let's walk through all the pros and cons.
Understanding Volume Discounts and Their Benefits
Volume discounts, also known as bulk discounts or volume pricing, involve offering a percentage discount or reduced pricing to customers who purchase a certain threshold volume of products or services. We see this all the time with consumer goods: Think about shopping at Costco or Walmart and buying the 24-pack of paper towels there versus at your neighborhood store. The local store might carry the same paper towels as a 6-pack for $5.99, or about 99 cents each, whereas Costco carries them in 24-packs for $18, or 75 cents each. You probably see the same thing if you've ever bought something like rice or lentils from a bulk bin at the supermarket.
24-pack of paper towels = fixed package with reduced unit price
Lentils from the bulk bin = no minimum quantity, but reduced unit price
This pricing strategy incentivizes larger purchases, ultimately leading to increased revenue and customer loyalty.
Some benefits of offering volume discounts in SaaS include:
Encouraging larger purchases
When customers are offered discounts for purchasing larger quantities or multiple products, they are more likely to opt for those options. This increases the average order value, leading to higher revenue for your business. Moreover, customers who experience the benefits of your product at a lower cost are more likely to continue using your service, creating long-term value.
Building customer loyalty
Offering volume discounts can create a sense of loyalty among customers, as they feel rewarded for their continued business. This loyalty can result in increased customer retention, positive word-of-mouth referrals, and a stronger brand reputation, all of which contribute to the long-term success of your SaaS business.
Attracting new customers
Volume discounts can be an attractive incentive for potential customers who are comparing various SaaS solutions. This is particularly true for small businesses and startups that are often working with limited budgets and looking to maximize their investment in software solutions. By offering competitive volume discounts, you can entice new customers to choose your product over competitors.
Differentiating from competitors
Offering volume discounts can help set your SaaS business apart from competitors who may not provide such pricing incentives. In a crowded SaaS market, distinguishing your product through attractive pricing strategies can be a key factor in capturing market share and growing your customer base.
Volume discounts can encourage customers to scale their usage of your SaaS product as their business grows. This not only increases your revenue but also strengthens the customer relationship, as they come to rely more heavily on your product to support their expanding operations.
Facilitating upselling and cross-selling
Volume discounts can create opportunities for upselling and cross-selling additional products or features. When customers are already incentivized to purchase larger quantities or multiple products, they may be more receptive to exploring other offerings within your product suite, further increasing their lifetime value.
BEWARE: Fear of Commitment, the Bulk Pricing Edition (and how to overcome it)
Larger customer commitment
In the Costco paper towel example, recall that the corner store offers the same product for a higher unit price, however, the overall price of this package is 1/3 the cost ($6 vs $18). Not every customer can or wants to pay that $18 even if it's a better value and better deal. Maybe they only have $6 budgeted today, or they only have space for 6 at a time.
But what if there was a way to get your customers to commit to the $18 24-pack of paper towels now, paying half now and half later? What if they could receive their allotments at a time that made sense for them? What customer would say no to getting the better deal if these constraints are addressed?
These are the kinds of creative solutions that are simply not possible with physical goods in physical stores like Costco, but CAN be leveraged for digital products like SaaS. All that's needed is a robust billing software system that's capable of handling this type of pricing logic (if you're in need of one, Wingback
is a good place to start).
Types of Volume Discounts
There are several types of volume discount pricing models to choose from, and each have their own unique benefits and situations they work well for enticing customers to buy more. Since real-life consumer examples of everyday goods are so effective here (punch card to the burrito place?! yes please!), we'll use those as our examples.
Threshold volume discounting
In this approach, customers receive a discount once they reach a specific threshold volume of products or services purchased. For example, a 10% discount may be offered for purchases of 10 or more units. This encourages customers to purchase a large quantity up front in order to benefit from the discount, increasing the likelihood of larger orders.
Consumer Product Example: Buy 3 get 1 free, or 10 for $100
With percentage discounts, customers receive a discount based on the quantity purchased, often structured in tiers. For example, a 5% discount may be applied for purchases of 5-9 units, a 10% discount for 10-19 units, and a 15% discount for 20 or more units. This tiered approach provides increasing incentives for customers to purchase larger quantities, while also offering flexibility in the level of discount offered.
Consumer Product Example: 20% off orders above $100, or $50 off $500 or more
Package pricing model
This model involves bundling multiple products or services together and offering a discount for the entire package. This encourages customers to purchase multiple products or services, ultimately increasing revenue and potentially introducing them to additional offerings within your product suite. One way we've seen this done is a discounted bundle that includes a CRM software, project management tool, and customer support platform.
Consumer Product Example: Combo/Value meal at a fast-food place (drink, fries and a burger)
Volume-based subscription tiers
In this model, customers pay a lower price per unit as they move up in subscription tiers based on their usage or number of users. This could look like having a "Basic" plan for 1-10 users at $10 per user, a "Pro" plan for 11-50 users at $8 per user, and an "Enterprise" plan for 51+ users at $6 per user. This encourages customers to grow their usage or user base to take advantage of the reduced pricing.
Consumer Product Example: $6 / 6-pk corner store paper towels vs $18 / 24-pk at Costco
Sliding scale discounts
Sliding scale discounts involve offering customers a variable discount based on the quantity purchased, with the discount rate increasing as the quantity increases. For example, you might offer a 5% discount for purchases of 5-9 units, with the discount rate increasing by 1% for each additional unit purchased, up to a maximum of 15% for 20 or more units. This model provides a continuous incentive for customers to purchase larger quantities, as the discount rate increases along with the order size.
Consumer Product Example: Bulk movie or concert tickets capped at a certain number of seats
Implementing a Volume-Based Pricing Model
If you think volume-based pricing might be a good idea for your SaaS startup, there’s a few general steps you’ll want to take:
- Analyze your costs: Determine the costs associated with providing your SaaS product or service, including infrastructure, support, and development. This will help you set appropriate discount tiers while maintaining profitability.
- Research the market: Look at your competitors' pricing strategies and determine the industry standards to ensure you’ll be offering a competitive discount
- Set discount tiers: Build out your discount system based on threshold volume or percentage discounts. Consider factors such as customer demand, profitability, and market trends, and be sure to think carefully about your ICPs and what they need.
- Test and adjust: Continuously monitor the performance of your volume pricing model and make adjustments as needed to ensure you’ve set the right pricing for both you and your customers.
Some Challenges that Volume-Based Pricing can Present
Keep these in mind as you go about deciding whether volume pricing is right for your SaaS at this current stage – and be aware as you implement and adjust along the way:
- Balancing discounts and profitability: Offering discounts can lead to increased revenue, but it's essential to ensure this doesn’t actually eat away at your profitability.
- Managing customer expectations: Be transparent with customers about the terms and conditions of your volume discounts to avoid confusion and potential frustrations.
- Adapting to market changes: Regularly review your volume pricing model to ensure it remains competitive and relevant in the ever-changing SaaS market
Heads Up: Standard pricing & billing solutions may not support volume discounts well
If your plans or pricing models include more than 1 priced feature, or if you’ve got hybrid plans, a typical Subscription Management System or billing software won’t cut it. It’s likely you’ll have to build a lot of this from scratch, and even then this could be an ongoing headache.
To get the benefits of Volume Discount and Bulk Pricing without having to create a mess for yourself later on, check out new solutions like Wingback
that are specifically designed for complex B2B SaaS monetization strategies and fully support hybrid and multi-model pricing.
Volume discounts in SaaS can be a powerful pricing strategy – they tend to encourage larger purchases, promote customer loyalty, and differentiate your business from competitors. If done well, your SaaS business can reap the benefits without taking a bite out of your bottom line. If you’re considering implementing a pricing strategy that includes a bulk pricing component, be sure you’ve also got a pricing or monetization software solution in place that supports this.