3 min read
Is two always better than one? When it comes to SaaS pricing models, the answer is usually yes. Choosing a hybrid pricing model allows businesses to give their customers more flexibility and features, while gaining access to more valuable data and improving conversions. This can help you scale your SaaS business more effectively. When applied correctly, it’s a win-win. Here’s a closer look at SaaS hybrid pricing models and how they work.
What is a hybrid SaaS pricing model?
When you combine more than one model into your pricing strategy, it becomes a hybrid pricing model. For SaaS businesses, this usually means combining billing strategies to improve conversions and customer lifetime value. You want to encourage customers to renew their subscriptions, but to do so they need to feel like they’re getting a useful service for the right price. In more technical terms, hybrid pricing combines two or more pricing metrics.
What are different SaaS pricing models?
You can find out about all the options available in our guide to SaaS pricing models and strategies. Here’s a quick overview of the different SaaS pricing models out there:
Flat-rate model: The customer is charged a flat, fixed fee at regular intervals.
Tiered pricing model: The business offers several levels of service, each at a different price point.
Per-user pricing model: The customer is charged depending on the number of service users.
Feature-based pricing model: Pricing levels depend on the distinct features of the service that the customer needs.
Usage-based pricing model: Customers are charged depending on how frequently they access the service.
Freemium model: The product is free at a basic level, giving customers the chance to try it out before upgrading to a premium paid version.
What are the benefits of hybrid SaaS pricing models?
The major benefit of any hybrid pricing model is its flexibility. For SaaS products, giving customers more choice when it comes to their service levels and payment plans can only be beneficial. At the same time, you’ll also increase data collection by encouraging more interaction with your product. For example, freemium pricing is by its nature a hybrid pricing model. Businesses gather customer data at the point of signup, which can be used in marketing efforts to encourage further upgrades.
According to the Harvard Business Review, conversion rates from freemium to paid subscriptions stands between 2-5%. By using a targeted hybrid pricing strategy, you can improve these conversion rates. Users are more likely to make a purchase when they receive customized, data-driven incentives. They’re also more likely to convert when presented with a range of options in terms of prices and plans.
How to choose the best pricing models for SaaS
Like many pricing strategies, finding the best pricing model for SaaS business involves market research along with a bit of trial and error. To help you get started, here’s a rundown of some of the most natural combinations when it comes to hybrid pricing models.
Feature-based + Tiered = Feature-based tiers
Most tiered pricing models are feature-based. This is a hybrid pricing model with broad appeal. It’s easy to understand for consumers. They see several packages available at tiered prices, each offering a list of specific features for full transparency.
Usage-based + Flat-rate = Overage pricing model
Another popular hybrid model is overage. You’ve probably come across this type of strategy with utility companies before, as most phone and internet companies use this model. Customers pay a flat rate for basic services each month. When they go over their allowances, they’ll pay overage fees based on usage.
Of course, when it comes to SaaS payments and pricing models it’s best to think specifically about your customer demographics, buyer personas, and products offered. You can then mix and match the various pricing models to offer a tailored solution that makes the most sense.
Once you’ve selected a hybrid pricing model, it’s also important to find a recurring billing solution for timely, reliable payment collection. With GoCardless, you’ll be able to manage customer bank debit payments seamlessly from a central dashboard. We’ve automated the process with a quick online signup form, flexible timings and low fees. Customize integration with our developer-friendly API or opt for pre-built integrations with the subscription billing software of your choice.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.