Catalog
concept#Product#Governance#Analytics#Platform

Pricing Model

A structured model for determining prices, discount logic and monetization rules for products or services.

A pricing model defines how an organization structures prices for products or services, establishing rules for discounts, subscription tiers, bundling and value-based approaches.
Established
Medium

Classification

  • Medium
  • Business
  • Organizational
  • Intermediate

Technical context

CRM system for customer segmentationBilling and invoicing systemAnalytics platform for price monitoring

Principles & goals

Pricing is guided by customer value, not just costs.Pricing models must be transparent, scalable and auditable.Experimentation and data-driven validation are central.
Discovery
Enterprise, Domain

Use cases & scenarios

Compromises

  • Customer churn from poor communication of price changes.
  • Lack of data can lead to incorrect price signals.
  • Excessive discounts undermine long-term margins.
  • Start with clear hypotheses and measurable KPIs.
  • Automate billing and discount logic where possible.
  • Communicate price changes transparently to customers.

I/O & resources

  • Market and competitor analysis
  • Cost structure and margin targets
  • Customer data and usage metrics
  • Defined pricing strategy and tariffs
  • Implementation requirements for billing and sales
  • KPIs and monitoring dashboard

Description

A pricing model defines how an organization structures prices for products or services, establishing rules for discounts, subscription tiers, bundling and value-based approaches. It shapes revenue streams, market positioning and customer segmentation. The concept guides strategic decisions and trade-offs between volume, margin, monetization and long-term growth.

✔

  • Improved revenue control through clear rules and segments.
  • Higher customer price acceptance through value-based approaches.
  • Better predictability of cash flow and margins.

✖

  • High analysis effort to determine customer value.
  • Complexity with multiple tiers and special conditions.
  • Possible market reactions and competitive pressure after price changes.

  • Average Revenue per User (ARPU)

    Average revenue per customer over a period; indicates monetization effectiveness.

  • Customer Lifetime Value (LTV)

    Expected total revenue from a customer over their relationship; important for pricing and acquisition decisions.

  • Price Elasticity

    Sensitivity of demand to price changes; drives optimization strategy.

Freemium model of a SaaS provider

Free basic features, premium features via subscription; focus on user growth and upsell.

Value-based pricing in the B2B segment

Prices are set based on the customer value and ROI delivered by the product.

Cost-plus pricing in retail

Calculation based on cost plus desired margin; easy to implement, less market-oriented.

1

Analyze cost structure and customer segments

2

Design tariff models and discount rules

3

Validate via pilots or A/B tests

4

Rollout, monitor and iterate adjustments

⚠️ Technical debt & bottlenecks

  • Hardcoded price logic in product code instead of billing service.
  • Missing metrics for long-term impact of pricing decisions.
  • Inconsistent price setting across sales channels.
Data latency in usage metricsManual discount approvalsLack of billing logic automation
  • Introducing deep discounts to boost sales without margin consideration.
  • Moving to dynamic pricing without privacy and fairness checks.
  • Complex bundles that neither sales nor customers understand.
  • Underestimating internal effort for billing and support.
  • Neglecting legal price regulations in markets.
  • Scaling too fast without validating willingness to pay.
Product management and pricing strategy experienceData analysis and experiment designContractual and legal understanding for B2B deals
Scalability of billing systemsData quality for pricing decisionsIntegration with sales and CRM processes
  • • Legal requirements for price disclosure and transparency
  • • Technical constraints of the billing system
  • • Contractual bindings and existing price agreements