Ramping Structures
Overview
Ramping is a pricing strategy which is used to gradually increase the cost of a subscription as the quantity of enabled units grows over the course of a contract.
Let’s illustrate how ramping schedules work by pricing a single contract against two different pricing structures: flat-rate pricing and tiered pricing.
Flat-rate ramping
Read more about flat-rate pricing here.
Formula for cost calculation
To calculate the subtotal of each ramping period:
unit price * quantity * duration
Example - flat-rate ramping
Contract terms
Start date: December 14, 2023
Contract period: 12 months
Ramping schedule
| Ramping period | Start date | Quantity |
|---|---|---|
| 1st | December 2023 | 50 units |
| 2nd | April 2024 | 100 units |
| 3rd | July 2024 | 150 units |
Pricing structure
$39 per unit monthly
Cost breakdown
| Ramping period | Duration | Cost |
|---|---|---|
| 1st | 4 months (December 14, 2023 - April 13, 2024) | $39 * 50 units * 4 months = $7,800 |
| 2nd | 3 months (April 14, 2024 - July 13, 2024) | $39 * 100 units * 3 months = $11,700 |
| 3rd | 5 months (July 14, 2024 - December 13, 2024) | $39 * 150 units * 5 months = $29,250 |
Grand total
$7,800 + $11,700 + $29,250 = $48,750
Tiered ramping
Read more about tiered pricing here.
Formula for cost calculation
To calculate the subtotal of each ramping period:
- calculate the cost of each tier:
unit price * qty - sum the cost of all tiers and multiply by the duration of the ramping period:
sum of all tiers' costs * duration
Example - tiered ramping
For this example, we’ll use the same contract terms and ramping schedule as the flat-rate example, except now using a tiered pricing structure.
Contract terms
Start date: December 14, 2023
Contract period: 12 months
Ramping schedule
| Ramping period | Start date | Quantity |
|---|---|---|
| 1st | December 2023 | 50 units |
| 2nd | April 2024 | 100 units |
| 3rd | July 2024 | 150 units |
Pricing structure
| Quantity range | Monthly unit price |
|---|---|
| 1-39 | $39 |
| 40-79 | $35 |
| 80-129 | $29 |
| 130+ | $25 |
Cost breakdown
| Ramping period | Duration | Cost |
|---|---|---|
| 1st | 4 months (December 14, 2023 - April 13, 2024) | Units 1-39: $39 * 39 units = $1,521 Units 40-50: $35 * 11 units = $385 Subtotal: ($1,521 + $385) * 4 months = $7,624 |
| 2nd | 3 months (April 14, 2024 - July 13, 2024) | Units 1-39: $39 * 39 units = $1,521 Units 40-79: $35 * 40 units = $1,400 Units 80-100: $29 * 21 units = $609 Subtotal: ($1,521 + $1,400 + $609) * 3 months = $10,590 |
| 3rd | 5 months (July 14, 2024 - December 13, 2024) | Units 1-39: $39 * 39 units = $1,521 Units 40-79: $35 * 40 units = $1,400 Units 80-129: $29 * 40 units = $1,160 Units 130-150: $25 * 21 units = $525 Subtotal: ($1,521 + $1,400 + $1,160 + $525) * 5 months = $23,030 |
Grand total
$7,624 + $10,590 + $23,030 = $41,244