---
title: SAP Service Contract Billing -- Tier'd Pricing -- We did it!
description: SAP standard SD pricing lacks true tier'd pricing. Our Service Contract Billing Workbench delivers a flexible, proven solution for complex pricing needs.
---

[Soren's Blog | SAP Warranty and Service Management solutions ](https://www.deteringconsulting.com/blog)

# [SAP Service Contract Billing -- Tier'd Pricing -- We did it!](https://www.deteringconsulting.com/blog/sap-service-contract-billing-tier-pricing-solution)

 Written by [Soren Detering](https://www.deteringconsulting.com/blog/author/soren-detering) | Nov 18, 2020 5:54:00 AM

## [Tier'd Billing](https://www.deteringconsulting.com/sap-program-sd-pricing-tier-performance) Requirement

If you sell airplanes, [heavy equipment](https://www.deteringconsulting.com/blog/11-secret-ways-you-can-use-warranties-in-your-unique-value-proposition) such as bulldozers, or medical [equipment](https://www.deteringconsulting.com/sap-serial-number-management-presentation) such as sub-zero freezers, then you may have [service contracts](https://www.deteringconsulting.com/blog/how-to-create-an-effective-warranty-fraud-detection-process) whose [prices](https://www.deteringconsulting.com/blog/how-to-design-your-product-hierarchy-in-sap) vary with the [amount of usage](https://www.deteringconsulting.com/blog/how-to-define-and-manage-entitlements-in-sap-service-contracts-better). In this case usage is defined as tiers.

 

## What is a Tier?   

A tier is a typically a price band that includes an upper and a lower limit. Another way to say that, is for example the following:

- Tier-1  $100 per hour,  the first 100 hours. 
- Tier-2  $200 per hour for the next 250 hours. 

Tier-1 is for flight hours between 0 and 100 hours. Each hour flown will cost the customer $100.00

Tier-2 is for hours flown between 101 and 350 hours, which get billed at $200 per those hours. 

### Usage Data Capture  

 Over time, the aircraft is flown: On a monthly basis, flight hours are collected via a data communication link interchange, or manually reported and keyed into the system. We know how many hours each aircraft has been flown. 

 

## SD Pricing Gap for Tier'd Pricing   

Now, let's define the current limitation in [SAP standard SD pricing](https://www.deteringconsulting.com/blog/11-best-ways-to-improve-sap-claims-management-processes). 

[Tier Pricing](https://www.deteringconsulting.com/sap-consulting-focus-areas) requirement will calculate correctly, until the order quantity exceeds the threshold of the tier.  

For example, suppose there are two tiers:

- Tier-1:  
    $100 per hour,  the first 100 hours. 
- Tier-2:  
    $200 per hour for the next 250 hours. 

Let's suppose several months of usage-type billings:

### 1st month:

Suppose, aircraft is flown 80 hours, then the invoice for that month will be: 

80 hrs x $100 = $8,000. 

SAP SD pricing calculates the first invoice of 80 hours correctly. 

### 2nd month:

Suppose, aircraft is flown 30 hours. If you think of our tiers, Tier-1 still has 20 hours to go, hence 10 hours will overflow into Tier-2. The system is calculating

20 x $100 = $1,000 that is correct, plus 10 x $0 = $0

as that overflow quantity went over the threshold of the 1st tier and 2nd tier isn't yet considered by SAP SD pricing. Within the standard setup a line item can only reference one tier. 

### 3rd month:

Suppose a third month's flight hours is another 50 hours.  

Creating a third invoice for quantity 50, the system correctly calculates that price at the tier-2 rate

50 x $200 = $10,000. 

### 4th month:

Flight hours flown in a hypothetical 4th month, consuming all remaining hours in tier-2 will price correctly: 

Suppose a third month's flight hours is another 210 hours.  

This will get us 10 hours past the tier-2 threshold. 

200 x $200 = $40,000

With that last [invoice](https://www.deteringconsulting.com/blog/sap-warranty-analytics), both tier's thresholds are reached, time buckets are consumed. 

You can see the [SAP SD](https://www.deteringconsulting.com/blog/top-11-things-you-did-not-know-about-sap-rma-returns) pricing gap exists when usage goes over tier-thresholds.  By not invoicing the overflow hours,- the gap would have cost the business 10 un-billed hours of Tier-2: 

$2,000 in billings.  

In high-usage environments, [SAP‑driven cost recovery consulting](https://www.deteringconsulting.com/cost-recovery-consulting-for-sap-supplier-recovery) ensures gaps like these are identified, closed, and systematically monitored so unbilled usage doesn’t quietly erode your recovery and profitability.

Now that we have defined the gap, let's talk solution. 

## Tier'd Pricing Solution

Long story short, this is a very complex [requirement](https://www.deteringconsulting.com/blog/your-ultimate-guide-to-sap-s/4hana-service-contract-management), a gap in SAP SD, discussed from many angles in Michael Romaniello's blog on [SAP Cumulative Graduated Pricing and Discounts. ](https://michael.romaniello.co/sap-cumulative-graduated-pricing-and-discounts/)For our [Service Contract Billing Workbench (BWB)](https://www.deteringconsulting.com/sap-service-contract-billing-solution-sap-add-on-billing-solution) we [implemented a fantastic and flexible solution](https://www.deteringconsulting.com/blog/how-to-calculate-an-sap-acs-warranty-project-payback) to this problem.  For organizations that want to ensure these billing improvements also translate into stronger financial outcomes, our [warranty and cost recovery consulting for SAP-based service contracts](https://www.deteringconsulting.com/cost-recovery-consulting-for-sap-supplier-recovery) helps connect tier’d usage billing, warranty entitlements, and supplier recovery into a coherent cost recovery strategy.

Do you know if you have a tier'd [pricing](https://www.deteringconsulting.com/blog/a-comprehensive-guide-to-sap-s/4hana-service-contract-revenue-recognition-using-rar) requirement within your enterprise?  

For many SAP customers, uncovering these requirements is the first step toward being able to [recover more from usage-based service contracts](https://www.deteringconsulting.com/cost-recovery-consulting-for-sap-supplier-recovery) instead of leaving money on the table when tiers aren’t billed correctly.

Many of our [customers](https://www.deteringconsulting.com/blog/sap-warranty-processing-dealer-portal) do that is why we built this solution. 

## Need to discuss tier'd pricing?  

Book a meeting using the link below:

 

 

 

 

[View full post](https://www.deteringconsulting.com/blog/sap-service-contract-billing-tier-pricing-solution)

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