A hybrid pricing model is a strategy that combines two or more different pricing structures into a single, cohesive model. This approach typically blends the predictability of fixed, subscription-based pricing with the flexibility of usage-based or consumption-based models. By doing so, it allows businesses to capture the best of both worlds: stable, recurring revenue and the ability to scale pricing directly with customer value and consumption.

For example, a SaaS company might charge a flat monthly fee for access to its platform and a certain number of user seats, but also charge for additional usage once a customer exceeds specific thresholds. This could include charges for API calls, data storage, or, increasingly, the consumption of AI credits.

Hybrid models work by layering different pricing components to create a structure that aligns with how customers use a product. This allows companies to cater to a wider range of customer needs and usage patterns.

Here are a few common hybrid structures:

• Subscription + overages: This is one of the most common hybrid models. Customers pay a fixed fee for a set amount of resources (e.g., 1,000 API calls per month) and are charged for any usage beyond that limit. This model provides predictability for customers while allowing the business to monetize heavy usage.
• Per-seat + usage: In this model, a company charges a per-user fee for access to the software, but also includes a usage-based component. For instance, a project management tool might charge per user but also have a tiered pricing system based on the amount of file storage used.
• Feature-based tiers + consumption: Many SaaS products offer tiered plans with different levels of features. A hybrid approach would add a consumption element to these tiers. A video hosting platform, for example, might offer different plans based on features like video quality and analytics, but also charge based on the amount of bandwidth consumed.
• Freemium + AI credits: With the rise of generative AI, many companies are offering a free tier to attract users and then selling AI “credits” for advanced features. This allows users to experience the core product at no cost, while power users who rely on AI-driven functionality pay for their consumption.

The key to a successful hybrid model is to identify the value metrics that are most important to customers and to build a pricing structure around them.

The shift towards hybrid pricing is driven by the need for SaaS companies to better align their revenue with the value they provide. Pure subscription models can sometimes feel rigid, while pure usage-based models can be unpredictable for customers. Hybrid models offer a compelling middle ground.

Here are some of the key benefits:

• Better value alignment: Hybrid models allow companies to charge customers based on the features and resources they actually use. This ensures that customers who derive more value from the product pay more, while smaller customers are not priced out.
• Increased revenue potential: By combining recurring revenue with usage-based components, companies can capture more revenue from their existing customer base. As a customer’s usage grows, so does their spending, creating a natural expansion of revenue.
• Greater customer satisfaction: When pricing is perceived as fair and transparent, customer satisfaction increases. Hybrid models can reduce the risk of churn by ensuring that customers are not paying for features or capacity they don’t need.
• Cost recovery for intensive resources: For products that rely on expensive infrastructure, such as AI-powered features, a consumption-based component is essential. This allows the business to cover its costs and maintain profitability without having to raise prices for all users.

While hybrid pricing models offer many advantages, they are not without their challenges. Implementing a hybrid strategy requires careful planning and a deep understanding of your customers and your cost structure.

Some of the common hurdles include:

• Complexity: Hybrid models can be more complex to design and communicate than traditional pricing. It’s crucial to ensure that customers understand how they will be billed and what they are paying for.
• Billing and invoicing: The operational side of hybrid pricing can be demanding. Your billing system needs to be able to track usage, calculate charges accurately, and generate clear, easy-to-understand invoices.
• Predictability: While hybrid models aim to offer a balance, some customers may still be wary of the usage-based component. It’s important to provide tools and dashboards that allow customers to monitor their consumption and forecast their costs.
• Sales and marketing: Your sales and marketing teams need to be able to explain the value of your hybrid model clearly. This requires training and the development of new messaging that emphasizes the fairness and flexibility of the approach.

To navigate the challenges and reap the rewards of hybrid pricing, it’s important to follow a set of best practices. These will help you create a model that is both fair to your customers and profitable for your business.

• Start with your value metric: Identify the core unit of value that your product provides. Is it the number of users, the amount of data processed, or the number of AI-generated reports? Your pricing should be anchored to this metric.
• Keep it simple: While it may be tempting to create a complex model that accounts for every possible usage scenario, simplicity is key. A model that is easy to understand is more likely to be accepted by customers.
• Communicate clearly and often: Be transparent about your pricing. Use your website, documentation, and in-app notifications to explain how the model works. Provide examples and case studies to help customers understand the potential costs.
• Provide visibility: Give customers the tools they need to track their usage in real-time. A dashboard that shows current consumption and projected costs can go a long way in building trust.
• Iterate and adapt: Your first attempt at a hybrid model may not be perfect. Be prepared to gather feedback from your customers and to make adjustments over time. The best pricing models evolve with the product and the market.

Kinde is designed to simplify the complexities of modern SaaS pricing. Our platform provides the tools you need to implement and manage sophisticated hybrid models with ease.

With Kinde, you can:

• Combine subscriptions with usage-based billing: Set up flexible plans that include a recurring fee and charges for metered usage, such as API calls, data storage, or AI credits.
• Offer tiered plans: Create feature-based tiers that cater to different customer segments, each with its own mix of subscription and usage-based components.
• Manage multicurrency pricing: Expand your global reach by offering localized pricing in multiple currencies, all managed from a single dashboard.

By handling the billing infrastructure for you, Kinde allows you to focus on what you do best: building a great product.

• Set up billing
• Manage subscriptions
• Metered billing
• Multicurrency