Block Pricing

What is Block Pricing?

Block pricing is a tiered pricing model where customers pay a fixed price for a predetermined quantity range, regardless of how much they actually use within that range. Unlike per-unit pricing, customers must purchase the entire "block" at once—making it an all-or-nothing decision.

Think of it like buying eggs at a warehouse store. You can't buy 7 eggs; you must choose between the 12-pack for $3 or the 36-pack for $7. Even if you only need 15 eggs, you're paying for all 36.

Related Terms

• Tiered pricing

• Volume pricing

• Quantity-based pricing

• Multiple unit pricing

• Second-degree price discrimination

How Block Pricing Works

The mechanics are straightforward. A cloud storage provider might structure their pricing like this:

If a customer needs 150 GB, they pay $30 for the 500 GB block—not $15 for exactly 150 GB. That's the key difference from traditional volume discounts.

The Technical Setup

When implementing block pricing, you're working with two critical boundaries:

Lower bound: The minimum quantity to enter a pricing tier
Upper bound: The first quantity your block doesn't support

Here's the formula for calculating block price:

IF quantity >= lower_bound AND quantity < upper_bound THEN
    price = block_price

Configure your billing system to automatically map customer usage to the correct pricing block. This eliminates manual calculations and prevents billing disputes.

Why Companies Use Block Pricing

Revenue Predictability

Block pricing creates predictable revenue streams by pushing customers toward higher-value purchases. When a customer is at 85 GB and knows they'll pay the same price up to 100 GB, they're incentivized to use more of your service—increasing engagement without affecting your bottom line.

Implementation Challenges

Where billing teams often struggle:

1. Mid-cycle upgrades become complex—do you prorate? Credit unused portions?

2. Usage visibility is critical—customers need dashboards showing their consumption

3. Churn risk increases when customers consistently underutilize their blocks

Block Pricing Across Industries

Energy Sector

Utility companies commonly use "inclining block rates" where each successive tier costs more per unit, discouraging excessive consumption. The inverse—"declining block rates"—incentivizes higher consumption, often used for industrial customers.

Telecommunications

Mobile carriers package data in blocks. A 2 GB plan might cost $20, a 10 GB plan $35, and unlimited $50. The psychology is powerful—customers paying $35 for 10 GB rarely switch down to 2 GB, even if they consistently use only 3-4 GB.

Enterprise Software

Enterprise software agreements frequently use block pricing tied to user counts, where crossing a threshold unlocks both lower per-user pricing and additional features.

Setting Up Block Pricing in Your Billing System

Step 1: Define Your Blocks Strategically

Start by analyzing your customer usage distribution. You want blocks that:

• Capture natural usage clusters

• Create meaningful upgrade incentives

• Don't leave money on the table

# Example block definition
pricing_blocks = [
    {"min": 0, "max": 100, "price": 10},
    {"min": 101, "max": 500, "price": 30},
    {"min": 501, "max": 2000, "price": 80},
    {"min": 2001, "max": None, "price": 200}
]

Step 2: Handle Edge Cases

RevOps teams need clear policies for:

• What happens at exactly 100 units? (Use < for upper bounds, not <=)

• How to handle downgrades mid-billing cycle

• Whether to allow custom blocks for enterprise deals

Step 3: Configure Your Billing Platform

Modern billing platforms should support:

• Automatic block assignment based on usage

• Real-time usage tracking against block limits

• Proactive upgrade notifications at ~80% utilization

Legacy billing systems often require custom development for block pricing. Factor this technical debt into your pricing strategy evaluation.

Block Pricing vs. Other Volume Models

Understanding when to use block pricing versus alternatives matters for pricing strategy.

When Block Pricing Works Best

• High marginal costs that decrease with scale

• Capacity-constrained resources (server space, API calls)

• Simplicity is valued over flexibility

When to Consider Alternatives

Volume Discounts: Better when customers need pricing flexibility

1-99 units: $10 each
100-499 units: $9 each (10% discount)
500+ units: $8 each (20% discount)

Usage-Based Pricing: Ideal for consumption that varies significantly month-to-month

$0.10 per API call, no minimums or maximums

Hybrid Models: Combine base blocks with overage charges

100 GB included for $30/month
Additional usage: $0.15/GB

Common Pitfalls and How to Avoid Them

The Utilization Problem

When customers consistently use only 60% of their block, they feel overcharged. Implement usage analytics and proactive recommendations to help customers right-size their plans—or accept the churn risk.

The Pricing Cliff

Moving from one block to another can create sticker shock. If 100 units cost $50 but 101 units cost $150, you've created a barrier to growth.

Better approach:

• 1-100 units: $50

• 101-500 units: $120

• 501-1,000 units: $200

Smooth transitions encourage upgrades rather than penalizing growth.

Currency and Regional Considerations

For companies operating internationally:

• Currency fluctuations affect block boundaries

• VAT/sales tax implications differ by region

• Local regulations may restrict certain pricing structures

When Block Pricing Makes Sense

Before implementing block pricing, consider:

1. Do your costs truly decrease with volume?

2. Can customers predict their usage reasonably well?

3. Is simplicity more valuable than flexibility for your market?

4. Does your billing infrastructure support this model?

If most answers are yes, block pricing may fit your business. If not, usage-based or hybrid models might better match your customers' needs.

The key is aligning your pricing model with both your cost structure and your customers' consumption patterns. Block pricing works when customers can reasonably predict their needs and when your cost structure rewards volume. It fails when customers feel trapped paying for capacity they don't use.