SaaS Pricing Evolution: From Subscriptions to Hybrid Pricing Models

Usage-based pricing is dead; long live usage-based pricing.

According to OpenView, 3 out of 5 SaaS companies now use some form of usage-based pricing.

But it's not just pure usage-based pricing that's gaining ground.

Many top SaaS companies, like HubSpot and Zapier, are pioneers of the hybrid model that combines subscriptions with usage-based pricing. ⛏️

According to OpenView's The State of Usage-Based Pricing report, 46% of SaaS companies take a hybrid approach, either testing usage-based pricing alongside traditional subscriptions or offering a usage-based subscription plan. OpenView also predicts that by year-end, 61% of tracked SaaS companies will have adopted some flavour of usage-based pricing, and another 21% plan to test it in the future. 📈

So, why should you consider a hybrid model?

💰 It allows you to capture additional revenue from customers who use your product or service more heavily while providing some predictability of a subscription pricing model.

🤝 Hybrid pricing models aligned with your customer's success can improve customer retention and reduce churn, ultimately increasing customer satisfaction.

🏎️ It allows you to create more accessible entry points that you may not have been able to justify with a pure subscription model, ideally reducing friction in the sales process and getting more customers to value more quickly.

If you want to explore a hybrid model and see if it could work for you, here are some actionable steps you can take:

👀 Analyze customer usage patterns: The first step is to examine how customers use your product and identify any trends or patterns. One way to do this is by breaking down the data into customer segments, which can help to uncover insights that may not be immediately apparent when looking at the data as a whole.

📊 Determine usage-based pricing metrics: Identify the specific usage metrics that align with your product's value proposition and your customer use cases. Ensure the metrics you choose are easy to understand, are closely tied to the value you deliver, and grow with your customer's product usage.

🧪 Test and iterate: Start with a small group of customers to test your hybrid model and gather feedback. Use this feedback to refine your pricing and communication.

🗣️ Communicate clearly: Be transparent with customers about how usage-based pricing works and what they can expect as they grow with your product.

If you're not already exploring a hybrid model, now's the time to have a serious look. Review your data and see how usage-based pricing might help you align more closely with your customers' needs and capture more value.

💡A mentor once told me that a good deal is when both sides feel a little bit uncomfortable - it means you're both invested in making it work. Combining subscriptions with usage-based pricing is a great way to share in the risk and reward, making it easier for your customers to adopt your product and giving you the flexibility to capture value

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