Hybrid pricing for SaaS: unlock revenue growth | easy guide

Alvaro Morales

The term hybrid pricing has been going around for some time, but lately, more and more SaaS companies have started adopting the model. So, it’s a natural time to start asking some questions:

Why and how are these companies making the switch?

Should I switch to a hybrid business model if I already have a pricing model in place?

Do the potential revenue gains outweigh the costs associated with implementation?

To answer these questions and help you decide whether a hybrid pricing strategy is the right choice, we made this primer that covers everything you need to know.

We’ll go over:

What is hybrid pricing?
Benefits of switching to hybrid pricing
Challenges to consider before switching
Some real-life examples of SaaS companies that implemented this strategy
Pro tips to help you implement this pricing model
How to start your implementation journey with the right partner

Let’s dive in.

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First, what is hybrid pricing?

At its core, hybrid pricing is an adaptive pricing strategy that combines the predictability of fixed-rate pricing with the flexibility of usage-based pricing.

This means you charge customers a monthly fee for your SaaS’s core features, plus additional fees for using extra services or features outside your core offering. This means you’re generating an additional revenue based on customer usage while also offering flexibility to your customers.

Here’s an analogy — your apartment: You can think of the fixed-rate component as paying for rent — you know what it will cost each month, and it covers the basics of what you need.

But that’s not all you need — unless you want to live in the dark and use a bonfire for cooking and heating. That’s where the usage-based components kick in. These would be your utilities; the more you use gas and water, the higher your bill will be at the end of the month.

Key benefits: Why more SaaS companies are switching to hybrid pricing

Nearly half — a whopping 46% — of SaaS companies take a hybrid approach.

There are many reasons why adoption has skyrocketed, as well as some of the benefits of choosing this model:

Hybrid pricing boosts revenue — By offering a mix of pricing options, you're lowering the barrier for entry for a larger group of users.

Plus, with tiered discounts for those who use more, you're gently nudging customers to ramp up their usage (and their spending) over time.

It's all about the customer — With hybrid pricing, users feel like they have greater control. They're not stuck with a one-size-fits-all subscription that might not fit their needs perfectly every month.

Instead, they get to pick and choose, adjusting their plans to fit just right, whether their usage goes up or down. Many customers will be happy knowing you’re giving them flexibility.

Reaching new audiences — This approach isn't just good for the customers you have; it's great for reaching out to those you don't. By having different pricing levels, your product becomes appealing to a wider range of people.

This includes those in new markets or customer segments you haven't tapped into yet. It's a solid strategy for broadening your market share and discovering fresh avenues for growing your user base and revenue.

Gathering valuable insights — Hybrid pricing can also serve as a data collection engine. As customers adjust their plans and usage, you get a wealth of data and metrics about what they value most.

This isn't just numbers; it's insights into how your service fits into their world, which can be excellent for tailoring your offerings, considering upgrades to your software, and making your solution even more appealing to current and future customers.

Balancing costs — Adopting this model has a practical side, especially for services that lean heavily on AI/LLM providers, or other metered infrastructure. Since these tools often involve costs for tokens and API calls, hybrid pricing helps offset these expenses.

By charging (partially) based on usage, the costs associated with providing these high-tech features don't just fall on your shoulders. It's a way to ensure that — as your service becomes more valuable to a customer and therefore more resource-intensive — your pricing model adapts to cover these costs without running into the red.

Hybrid pricing challenges to consider

While all the benefits make hybrid pricing sound like such an idyllic choice, it doesn’t come without its challenges:

Tackling complexity head-on — Rolling out various pricing options sounds good until you realize the behind-the-scenes work it entails. You'll need to beef up your billing logic to handle a medley of pricing models, usage rates, and billing cycles for every customer.

This means either spending considerable engineering resources to up your existing systems and processes, or implementing specialized software to keep the hybrid pricing ship from capsizing and generating losses.

Predictability vs. variability tension — One of the tricky parts of hybrid pricing is striking the right balance between predictability and variability. On one hand, customers appreciate knowing what to expect in terms of costs. On the other, the usage-based charges introduce a new kind of uncertainty.

This tension can lead to hesitancy among potential customers who prefer a straightforward pricing model, or it might cause existing customers to second-guess their usage to avoid higher fees. This balancing act requires thoughtful communication and perhaps even caps or alerts to prevent nasty surprises.

Revenue forecasting challenges —The variability in how much and how often customers will utilize your SaaS's usage-based aspects can make it difficult to predict monthly or quarterly revenue accurately.

This unpredictability requires more sophisticated modeling and might necessitate a more flexible approach to budgeting and financial planning than you may have initially anticipated.

Hybrid pricing examples: SaaS case studies

Not all hybrid models are a combination of flat fees and usage-based models. Some incorporate freemium and add-ons as part of their hybrid strategy. Here are some examples of SaaS companies that have found success using hybrid pricing models:

Mailchimp

Email marketing giant Mailchimp switched to a hybrid pricing model in 2016 and now caters to businesses of all sizes. Their free plan allows startups to manage email marketing for up to 2,000 subscribers.

Paid plans, now ranging from $11 to $299 per month, offer additional features like automation, landing pages, and advanced analytics for businesses with growing needs. This flexibility has helped Mailchimp amass over 15 million customers.

HubSpot

HubSpot, a leading inbound marketing and sales platform, utilizes a hybrid pricing model with both subscription plans and add-on products. Their subscription plans start at $9 per month and provide core tools like CRM, marketing automation, and analytics.

They also offer extra products for social media, content creation, and sales enablement called “hubs” that customers can add — which increases their subscription plan bill at the end of the month. This model has fueled HubSpot’s growth to over 100,000 customers.

Slack

Slack's free version remains a popular entry point for teams seeking basic communication features. They offer paid monthly plans ranging from $8 to $12.50 per user, catering to businesses requiring increased storage, security, and compliance features.

This hybrid model — while not necessarily usage-based — allows Slack to attract a large user base while offering advanced functionality for paying customers. Their strategy has resulted in over 12 million daily active users.

Want to implement hybrid pricing? 5 tips to get you started

Make sure you’re starting your implementation journey on the right foot. Here are five best practices you should follow:

Equip yourself with the right tools — Jumping into hybrid pricing? Orb can juggle subscriptions, usage-based billing, and even those one-off charges.

Teach your customers the ropes — Hybrid pricing might make a few heads spin at first glance. Clear the fog by laying out your pricing model in plain language across all your communication channels. Break down how bills might change with usage and keep your customer in the loop at all times.

In short: The more they know, the smoother things go.

Keep it simple at the start — Diving headfirst into complex changes is a recipe for failure. Instead, take it slow. Maybe add just one usage metric to an existing plan, or roll out a usage-based extra alongside your subscription deals.

These baby steps let you test the waters, tweak things as you go, and gradually unfold more intricate hybrid setups informed by solid data.

Check in and tweak often — Setting up a hybrid pricing strategy isn’t a set-it-and-forget-it kind of deal. Regularly take the pulse of how the model is affecting your business health.

Keep an eye on metrics like monthly recurring revenue (MRR), customer churn, and lifetime value (LTV). Adjustments might be necessary, and that's okay. Hybrid pricing is all about staying on your toes and adapting as your customer base grows.

Dive into data for smarter pricing — It's all about understanding what tickles your customers' fancy — which features do they love, when do they use them, and how does this influence the way they perceive your solution’s value?

This isn't just about numbers; it's about crafting a pricing model that feels personal.

Next steps

Now that you know everything about hybrid pricing models for SaaS, you’ll want to start by ensuring the billing aspect of your strategy is covered.

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Start by choosing a partner that specializes in billing to help you overcome some of the hurdles of setting up. It doesn’t need to be a difficult decision as long as you remember this:

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Billing is the lifeblood of revenue, and nobody quite understands billing better than Orb does.

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Orb offers an intuitive and tailored-for-you solution that turns your customer’s usage data into invoices easily:

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Fast and friendly setup — Orb simplifies the journey to hybrid pricing with easy integration, offering in-depth invoice data and robust support. It's the perfect partner for melding data from various systems or building your billing framework from scratch.

Tailored to your needs — Orb's versatility supports a wide range of diverse SaaS pricing models, especially when blending subscription fees with usage-based billing. It's designed to adapt to your pricing strategy's unique needs and evolution.

Seamless integration — Orb understands your tech stack is a complex ecosystem. That's why it's designed to play well with others, boasting integrations with leading data warehouses like Snowflake, finance tools such as Netsuite and Quickbooks, and even offering a direct SQL editor for when your team needs to dive deep into the data.

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Learn how Orb can solve billing for you.