What is hybrid pricing?

A unique way to set prices is through hybrid pricing, which blends fixed-rate and usage-based pricing. It allows companies to charge customers a regular fee for any extra product or service use.

Companies that offer subscriptions and use a hybrid pricing plan often do some or all of the following:

• Flat-rate pricing: The customer pays a set amount to use the good or service.
• Tiered pricing: Customers pay a different monthly amount for different product or service versions. This is called tiered pricing.
• Pricing based on features: Different businesses offer different service features, and the price a customer pays depends on which features they choose.
• Pay-as-you-go pricing: The customer pays a set amount for each unit of use (for example, GB of storage), but their monthly bill changes based on how often they use the product.
• User-based pricing: For each extra user added to a subscription, the business charges an extra set or variable fee on top of the flat fee.

Companies give a free version of their product with limited features. After trying the product, users should upgrade to the paid version with more features.

The most widespread use of hybrid pricing in real life is for SaaS. An example of a flat monthly rate from a SaaS company is $49. After five people, there is an extra $10/user/month charge. Buyers can pick from an entry-level tier (usually a freemium or low-cost choice), a middle tier, and an enterprise tier with many features when they sign up to use the product.

Synonyms

• Hybrid billing model
• Hybrid pricing model
• Hybrid pricing strategy

Why do SaaS companies use a mix of pricing and billing?

Hybrid pricing is excellent because it lets businesses charge customers in various ways, making it easier for them to grow. It makes use of the advantages of the SaaS business model, which allows for scaling up or down based on features and usage.

By combining fixed-rate subscription-based pricing with usage-based pricing, SaaS companies can give their customers better service and make things easier for them, which helps their businesses grow. For instance, adding more users to an account after the limit number has been reached means businesses don’t have to worry about their subscriptions running out of users and paying more for a higher-level product.

Focusing on the customer

Even though Saacompanies’ main goal is to make as much money as possible, combining hybrid pricing and billing is very good for the customer.

• With a tiered pricing plan, customers who don’t need as many features and functions have to worry about spending too much on a service they don’t use enough.
• Allowing customization means business customers can pay more and get everything they need from the product.
• While flat rates are easy to plan for, most customers expect to pay more for more benefits. This makes a hybrid method more in line with how they see value.
• Because SaaS companies code their services based on usage, they can easily add more customers without raising prices too much.

Finally, hybrid pricing is an excellent way for SaaS companies to find the best mix between charging low prices and making as much money as possible.

Strategies for flexible pricing

The hybrid price is much easier for customers to understand and deal with. They don’t have to stick to one pricing model; they can choose from different ones based on their wants and budgets, which will likely change over time.

Let us say that a small business buys the base level of a software program. They only had five workers at that time, so this worked for them.

By the same time next year, they had a 30-person office. Several people were using the system. They also used it for many more business tasks, some of which hadn’t been needed.

Because they can add more people or raise the level of service they offer, they can keep working on the same UI without stopping their flow. They are still satisfied with their price because it shows the extra It’se.

It’s the same for lower-income people. Less money from customers isn’t ideal, but losing them is worse.

When a customer removes a user or downgrades, the price goes down immediately on their next bill. Because they can set this up with a few don’ts, they don’t have to cancel their service and switch to a different one.

Allows for More Ways to Measure Prices

SaaS companies benefit from keeping track of each user’s behavior and service usage. This helps them figure out who their users are, how often they use the service, and which features they like the most.

Based on how real customers use their services, this data helps SaaS companies improve their overall pricing strategy and services. They can add more value by adding new features, upsells, and cross-sells and getting rid of parents that aren’t needed.

Faster growth in revenue

Price optimization is much easier when you have more pricing metrics and customer information. Different types of customers can use a SaaS split into different products, and the company doesn’t have to make any new goods to serve them.

Conversion rates go through the roof when you can reach a much larger market share and give them a price they think is fair. SaaS companies that use mixed pricing can keep their customers while they grow. This lets them keep working with them and grow their business faster because they can be flexible with their products and prices.

Problems with Putting Hybrid Pricing in Place

Advanced subscription management software is the only way to use mixed pricing on a large scale, even though it helps businesses make more money and make customers happier.

• Setting up hybrid pricing is hard. The most challenging thing about using a hybrid pricing plan is its complexity. It’s not like an easy priceIt’st stays the same. It’s also not the same as a pricing plan based only on usage.
• Customers may be unable to understand the different price model structures that don’t make sense to them, and getting new customers is challenging.
• It’s hard to set up hybrid-priced goods. It can be challenging for sales teams to quote customers and bundle services based on the number of people who might need them and the features they need.
• You have to charge each customer a different amount. A person can’t accurately determine how much it costs per user or extra feature. It needs special software that tracks how the product is used and sends that information directly to the billing system.
• Some types of customers care a lot about price. Finding the right balance between subscription and usage prices can be challenging. You could lose money and miss out on chances if you overprice or underprice either part.
• How you use a product can’t be predicted, but the price can. For businesses to keep making the same amount of money, they must keep their flat-rate prices the same. Customers get angry when prices change too often or are billed at an unknown rate or amount every month. Customer satisfaction and profit can’t suffer if they can’t find the best mix between flat-rate and usage-based pricing (and do the math right).

How to Use Hybrid Pricing Most Effectively

Hybrid pricing has a lot of perks, like making more money and giving customers a better experience. But putting it into action is very hard, and getting it right is even more challenging.

To deal with the problems listed above, businesses should follow these helpful tips:

Software for CPQ, managing subscriptions, and billing should be used.

CPQ, contract management, and billing software are the three types of software that can handle hybrid pr” cing.

• CPQ stands for “co” figure, price, quote.” This program stores all the infproduct’sabout a SaaS product’s features and prices. It helps sales teams group services, offer discounts, and make quotes for current and potential customers. It eliminates all the trouble of giving buyers correct price estimates when the pricing models are so complicated.
• Membership management: This software takes care of membership orders, setting up services, collecting payments, keeping track of usage, communicating with customers (for example, sending invoices), and collecting data on how people use and interact with a product out customers usage-based charges and send them the correct invoices instantly.
• Automatic billing—billing is often part of managing subscriptions, but it can also be bought separately. Customers of subscription services have to be billed immediately. Billing done by hand cannot lead to mistakes and can’t be scaled up. The flat-rate and usage-based billing parts of a hybrid approach are handled by automated billing, so no one has to do anything.

Add just the correct number of factors.

Customers have difficulty getting more than three parts of a price (three is sometimes even too much and won’t be able to handle it). don’twon’t buy it if they don’t understand it. Your hybrid pricing model should be easy to explain in no more than one or two lines.

Here are some examples of famous (and practical) hybrid pricing models:

• Tiers based on features: each of the three or four price levels shows a list of features for the customer. They can see how moving from one level to it’snext makes sense. And it’s clear to them what they will get in return.
• Overage: Companies set a flat rate for a certain amount of use, like a phone company with a data cap or a cloud service provider with a storage limit. If a customer exceeds the limit, they must pay extra for the extra use.
• Flat-rate plus per-user: This is a popular way for SaaS companies to charge for their service. They charge a flat fee and then charge extra per user after a certain number of users.
• Pure pay-as-you-go: Companies charge a flat fee to use their service for a certain amount of time, like one month. This fee can be paid up front or at the end of the billing period. After that, users are only charged for what they use.
• Subscription fees and one-time fees: SaaS companies often charge setup and implementation fees when they set up and use a corporate or custom-coded solution across multiple business units. The same goes for integrations that are hard to do, that involve a lot of people or that require complicated IT systems.

As much as possible, make hybrid bills the same.

It makes sense that some kinds of hybrid billing are more likely to change than others. Customers like the hybrid approach, but they value consistency more than anything else. If not, it will be hard for people to afford your goods.

According to the customer’s plan, most of a customer’s bill should be made up of flat-rate prices. Customers may think they aren’t being ripped off if this doesn’t happen. Last but not least, they won’t know what they’ll have to pay at the end of each billing session, which keeps customers happy. It’s also essential that they fully understand the rules before signing up. If you’re unclear, they might be shocked by their bill, which can cause them to cancel or dispute the charge.

Regularly look at your prices and make changes as needed.”

You should never “take it and forget it” when pricing your business, mainly if you use a hybrid pricing plan. Review and change your prices often to make sure they reflect the value of your product or service.

To improve your pricing plan over time, get customer feedback, keep an eye on how the market is changing, and track how people use and engage with your product. Not only will you keep yoyou’llces low, but you’ll also be honest with your customers and earn their trust.

Teach your business.

Customers are sometimes confused by hybrid pricing methods because they are so complicated. In addition to making your hybrid price as easy as possible, you should also spend time and money teaching people about it.

Make it clear how your price works, including both the subscription and usage parts and the benefits it offers. This can include in-depth guides, explainer films, or even one-on-one chats with customer service reps.