There are many different SaaS pricing models, which means there are many options for mixing and matching the best elements of each to create a pricing strategy that is unique and perfectly tailored to your business. The truth is that most SaaS companies eventually adopt a hybrid pricing model because it allows them to better align the value and price of their subscription services as they adapt to the needs of their buyers.
Successful hybrid pricing models are carefully crafted to balance the cons and reinforce the pros of their standard counterparts. If your company chooses to implement hybrid pricing, ensure that you follow these five best practices when developing the model:
1. Complete comprehensive market research
2. Implement a value-based billing metric
3. Experiment with your pricing structures
4. Invest in forecasting tools
5. Prepare for backloaded growth
It’s very unlikely that you will achieve a lucrative hybrid pricing model on your first go, but you can give yourself the best chance of success by being prepared to analyze churn metrics and making your offering adjustable, repeatable, and simple to understand. Below, you will find the top five hybrid pricing models in use today with examples of companies who’ve mastered these best practices.
Want to explore a specific hybrid pricing model? Skip ahead by clicking on the topic.
- Feature-based tiers | Feature-based and tiered pricing
- Overages | Usage-based and flat-rate pricing
- In-store credits | Bundling and usage-based pricing
- Freemium tier | Hybrid including freemium pricing
- Mix and match | Hybrid of more than two pricing models
One of the most natural hybrid pricing models is a combination of feature-based billing and tiered pricing. Feature-based tiers provide companies with more control over the consumer’s perceived value of their offering, as well as the opportunity to leverage the Goldilocks principle and direct customers towards their median pricing options.
Both standard tiered and feature-based pricing models attract a broad potential audience, which can create some problems if poorly managed. However, the resulting hybrid model helps to address some of those concerns. One of the main issues with standard tiered pricing is the potential loss of revenue from attracting the wrong customers or customers choosing the wrong tier. Basing the tiers on different features better communicates the justification behind the pricing. If done correctly, you can appropriately charge for complexity without overwhelming your customers.
Blue Apron is a meal-kit subscription service that sends you easy-to-follow recipes and pre-proportioned ingredients to simplify dinnertime. They currently offer four plans that target three diets and two serving sizes. Customers can choose recipes from their menu and decide whether they want the kit to arrive two, three, or four times per week. Blue Apron has an expert understanding of their buyer personas and has crafted these four tiers to appeal to their unique customer segments.
Most phone and internet companies use a common hybrid pricing model called overage pricing. Customers are charged a flat-rate each month, but rather than cutting off their access at a certain limit, companies allow them to continue to use the service and charge an additional fee for the extra amount, like in usage-based billing.
This combination works well to overcome some of the cons of the standard pricing models. One of the cons of the flat-rate model is inflated operating costs caused by high-use customers, like large business buyers. By incorporating usage-based pricing, your company can continue to earn revenue from these customers to fund the resources required to maintain high caliber output. This hybrid model also alleviates some of the cons of a traditional usage-based pricing model. It can be easier for buyers to understand and simplify forecasting due to the flat-rate minimum payment per billing cycle.
Rogers uses a hybrid model to account for their wireless Internet add-ons for mobile phones and smartphones. Customers pay a basic fee each month to access a specified amount of data and then pay an additional amount for any usage beyond that. Since Rogers offers multiple add-ons with overage pricing, they’ve also opted to include feature-based tiers to capture different customer segments based on data usage and ultimately upsell customers that routinely incur overage fees.
In-store credits when adapted to a subscription service unites the benefits of bundle pricing and usage-based billing. Customers purchase a certain number of credits on a recurring basis and then use those to ‘buy’ a selection of goods and services offered by the company. Both bundle and usage-based pricing are created to easily convey the value of discounts, so when it comes to customer acquisition, you can readily offer bulk discounts to reward high usage.
Customers can enjoy a one-stop shopping experience purchasing multiple goods and services via one recurring bill, and therefore, streamlining the buyer’s journey. An in-store credit system adds an extra layer of flexibility and personalization afforded by the usage-based pricing model. This hybrid model can also be easily adapted to your industry. For example, it’s common for companies in the gaming industry to develop an in-game currency system, especially if their product is freeware.
Class Pass is a health and fitness subscription service. You are allotted a certain number of credits each month to ‘spend’ on a selection of different available classes. This flexibility allows customers to curate their activities to fit their needs as they progress through their health journey. The five different plans facilitate a natural upselling process as customers grow familiar with the system.
The freemium model easily lends itself to hybridizing with almost any other pricing model because it can be offered as an introductory tier. A freemium tier can attract more customer segments and allow buyers the opportunity to familiarize themselves with the offering before committing to a specific plan. When managed appropriately, the freemium tier will offer just enough functionality to appease customers in the awareness and consideration stages, but ultimately leave them wanting more as they transition to the decision stage.
Dropbox is a file hosting service that offers cloud storage, file synchronization, personal cloud, and client software. They provide a basic free tier for personal use, called ‘Dropbox Basic’ and then upgraded plans for that include more storage and are priced on a per-user basis. Individual plans and Dropbox Business have separate pricing pages, which are strategically positioned to minimize any anchoring effects of the individual freemium tier and gain the benefits of offering a thirty-day free trial for the added functionality of the business tiers.
Some businesses benefit the most from combining so many elements, they practically invent their own pricing models. At the peak of customization, this strategy can be very lucrative if carefully crafted for maximal appeal to your buyer personas. However, due to its complexity, you will need an advanced recurring billing solution to ensure error-free invoicing and maintain compliance with accounting standards.
Gather provides a virtual environment for people to meet up or attend events. They have a basic freemium tier that is capped at 25 concurrent users. After that limit, all their plans can host up to 500 concurrent users. Their paid subscription plan is available monthly at a flat rate of $7 per user, but you can also purchase two-hour, or day passes for standalone events. Considering that the small enterprise was founded in 2020, it’s doing quite well one year on with 4 million users and $4.8 million in annual revenue.
Are you interested in a particular advanced subscription pricing model? Check out our guides below.