There are two golden rules in B2B SaaS pricing:
1 Pricing scales with value for the customer
2 Keep it simple
However that second rule has an important caveat which is best expressed by the Einstein Principle of Simplicity, summarized as "Everything should be made as simple as possible, but not simpler."
Simple SaaS pricing models like a flat fee per month or a flat per user per month charge are indeed easy for your customers to understand. But they are not always the best way to monetize. You may be leaving money on the table and failing to convert customers who would really love your solution if you just priced it with a bit more sophistication.
Hybrid pricing adds that sophistication.
What is Hybrid Pricing?
Hybrid pricing is a strategy that combines two or more pricing models within a single plan. This mix-and-match approach allows SaaS companies to cater to multiple customer profiles by offering different pricing metrics and options within one package. By closely mapping and scaling pricing with customer-perceived value, a hybrid pricing model leads to increased conversions and customer retention.
Convert More Customers
To illustrate this, imagine a B2B SaaS company that is considering different pricing schemes: per user and per usage. They have already done their homework and know how much customers value their solution, so they know how much revenue they should be making per customer.
They could choose to monetize the full value of their product through a recurring subscription fee that scales with the number of users like $10 per user per month.
This model is simple for customers to understand. But price-sensitive customers who do not believe that the $10 per user per month fee is fair for them will not sign-up. Since the fee is not usage based, customer willingness to pay will not significantly vary with usage volumes.
Alternatively, the SaaS company could choose to monetize the full value of their product instead through a usage-based pricing metric, like $0.10 per usage.
This model would have much better appeal to customers with low-usage since they would likely pay less than they would with the per-user fee in the first option.
But customers with high usage might decide that the pricing is too expensive for them and no longer correlates with their perceived value of the solution.
You might think that the SaaS company could introduce both models and let customers choose which one they prefer. But asking customers to try and optimize their spend like this leads to anxiety. Customers will second guess themselves as they consider their current and future usage patterns. And that slows down their decision making and leads to fewer conversions.
Hybrid Pricing is a great approach for this SaaS company. They can combine a flat per-user fee, at a lower price of $8 per user per month, along with a usage-based fee at a lower price of $0.05 per usage.
This hybrid model will now appeal to both high and low-usage customers. Sign-up conversions should increase across the board since the new plan will be seen as fair by a significantly larger number of customers because it maps well to their perceived value of the solution.
At the extremes, there may be less conversion from very high-usage customers who would have preferred a flat per-user fee, and from very low usage customers who would have been better off with a pure per-usage pricing.
But the overall increase in conversion should more than make up for this. That is the power of hybrid pricing.
Limits and Overages
A great tactic in such a hybrid billing model is to include some limited usage entitlement amount
in your base plan, and then charge for overage usage only if your customer exceeds that limit.
A good rule of thumb is to set your included usage entitlement limit at a point where at least 80% of your customers will never exceed it and never get charged extra for usage.
This makes your pricing very predictable for those customers and that makes it easier for them to sign up. In fact you should tell them on your pricing page
that you have sized the included usage entitlement limit to cover the majority of customer cases. That will give them more confidence in pressing that Buy button.
Your other customers who exceed that included usage limit will know that their usage pattern is in the minority, and should naturally feel that it is fair for you to charge them a little more.
You also need to use hybrid models when focusing on healthy margins per customer. If some element of your cost-to-serve varies dramatically across your customers based on their usage patterns, then you definitely need to protect against a margin squeeze and hybrid pricing provides the tools to do so.
An example is AI-powered SaaS apps. Often these apps rely on underlying AI compute infrastructure and foundational models from providers like cloud vendors, OpenAI, Anthropic, Mistral, Google DeepMind, etc. Such services do not come cheap and their impact on your margins can be significant for those customers who use a lot of your features which rely on them.
Another very common example is charging for storage in developer-focused SaaS apps. You have to pay for that cloud storage from your cloud provider. Most of your customers may not need much, but some may consume very large amounts.
Hybrid pricing solves for this elegantly. You can use the same mechanism as for Limits and Overages
above. You include some generous usage entitlement limits in your base plan, and then only charge your customers overage rates if they exceed those limits.
You can set the limit so that most of your customers never need to worry about it because they will never exceed it.
Your overage pricing can be set to model the cost structure of your providers, even building in a tiered pricing metric where the more your customer uses, the less they pay per unit. And if your cost basis goes down over time as your providers get more efficient and you get better rates as you scale up, then you can even give your customers some good news and let them know that you are lowering your overage rates, or offering tiered pricing to high-volume users, maybe offering this in exchange for them renewing a multi-year contract.
Data-driven Price Setting
Here at Wingback one of our favorite things about hybrid pricing strategies is that it means that you are gathering more granular data on what your customers need, use and value. You can see how customers respond to price levels on different priced features. You can see how usage patterns differ between different cohorts of customers who signed up to different plans with different usage entitlement limits.
As customers continue to subscribe, use, renew and (yes, unfortunately) churn, you are building up a very valuable store of data on how feature-based pricing affects customer usage and retention.
This rich data and its connection to your revenue stream is immensely valuable the next time you need to update your pricing strategy as your startup grows up, releases new product features, and expands into different customer segments or global markets. This moves you from a startup that just guesses what pricing model and price points to use, to one that is building a culture of price optimization.
Hybrid Pricing Strategies and When To Use Them
Flexible Scaling: Per-User + Usage-based Pricing
This is one of the most common hybrid billing models used by modern B2B SaaS companies. See the examples we outlined above for Convert More Customers
and Cost Containment
. It allows you to have a single plan that covers different customer profiles with varying usage patterns, converting more of them, and protecting your margins.
This hybrid pricing strategy offers a balance between the predictability of a fixed subscription and the flexibility of variable pricing, allowing customers to scale their usage as needed without committing to long-term, inflexible plans.
The usage component of such plans can use tiered pricing where the price per usage goes down as volume goes up, thus offering an in-built list-price discount for customers who consume a lot of that feature.
Minimum Pricing With Scaling: Recurring Subscription Fee + Per-User Pricing
Your best value-based pricing metric may be per-user pricing, and you want to allow your customers to start with a very low number of users, maybe even just 1. But if your price is something like $10 per user per month then many customers may sign up for just a few users, leaving your total revenue rather small and possibly less than your cost to serve that customer.
A solution to this is to use the hybrid pricing model of combining a fixed recurring fee, for example of $90, and then a per-user fee of $10. That means that you will always be earning at least $100 per month from that customer, and if this covers your cost to serve then you are margin positive from the first sign-up.
Add-on Plans: Flat/Per-User + Add-on Feature-Based Pricing
If you are a growth-stage SaaS company you should already be building your standard pricing packages based on your different customer segments. So you might have different plans for your Free Community customers, your Small Teams customers, your Professional customers and your Enterprise customers.
These will have differing sets of features included in each plan. And have higher usage entitlement limits as customers move from less expensive to more expensive plans.
But sometimes you have features that only very few customers need, and including them in a plan will actually harm conversion because most customers do not value the feature and will feel they are paying for something that they do not need.
And customers who do value that feature may be willing to pay a premium to get it.
Enter the hybrid billing approach where you price such features as add-ons: you include it in the subscription just for customers who really need it, and they see it as a separate line item on their sign-up page, their quote and their bill. And the add-on can be priced with any pricing model: flat, per-unit, usage-based, tiered pricing, etc.
This hybrid pricing approach allows you to both maximize conversion for your plans, and align the revenue of the add-on feature to the value perceived by the customers who really need it.
Pay-As-You-Grow: Freemium Pricing + Usage-Based Pricing
This hybrid combination allows customers to access a basic version of a product with some features and usage entitlement levels included for free while enabling the option to pay for additional usage as their needs grow. It appeals to customers who want to start with limited usage without upfront costs which makes the freemium pricing model very attractive, and these customers have the option to scale their spending as their usage and business demands increase.
One-time Setup Fees
You might not intuitively think it, but one-time setup fees are actually an example of a hybrid pricing model.
If you have significant costs for customer setup, onboarding or data migration then you could include these in the overall recurring subscription pricing fees that you charge to customers. In fact, if these fees are fairly standard across different customer segments then that is exactly what you should do. One less line item on the quote or pricing page is one less thing for your customer to worry about before signing up.
But maybe your setup costs are highly variable across different customer segments, like your enterprise customers who may need a lot of hand-holding. Then adding an extra one-time setup fee for just those customer segments makes a lot of sense. In that way the majority of your customers will not have to pay it, and only those customers who need it and value it will pay it. You can always elect to discount it or waive it for large enterprise customers if it ever becomes a sticking point in a deal.
Examples of Startups Successfully Leveraging Hybrid Pricing
Webflow: Flexible scaling
Webflow’s core pricing metric for site hosting is a simple flat subscription pricing fee per month. Customers in different segments choose the package of features that they need with the included entitlement limits and then pay that flat price.
But Webflow also recognises that sometimes their customers may experience unexpected rapid growth that causes them to exceed their limits.
To handle this Webflow uses the hybrid pricing model of Limits and Overages
where they charge their customers additional per-usage fees if they go over their subscribed limits in a given month, like for form submissions below:
This hybrid pricing model allows Webflow to keep their pricing model very simple, while not blocking customers when they need to exceed their subscription limits.
Zendesk: Add-ons for customers who need them
Zendesk for Service uses an easy-to-understand pricing model with a price per agent per month:
But Zendesk also uses the hybrid pricing model of add-ons
. These add-ons are likely because only a sub-set of Zendesk customers are interested in these add-ons, and so they can keep them out of their regular plans and only offer them to customers who value them. They can also be easy upsells for their existing customers who they think might need them.
If these features would become more mainstream over time, like perhaps the Zendesk Advanced AI features, they would likely be rolled back into one of the base Zendesk plans. This is a good example of a hybrid pricing strategy as a tool to be deployed when needed.
Gusto: flat recurring fees and per-user fees
Gusto’s automated payroll and HR tools have value even for very small team sizes, so they choose to use the hybrid pricing model of Minimum Pricing With Scaling
, where a flat recurring fee is combined with a variable pricing per-person fee.
This ensures that the base value to a customer of having the Gusto platform in place is captured in the flat recurring fee and as their customers grow and add more people to their plan then the price scales to capture that incremental value.
When Not to Use Hybrid Pricing
While hybrid pricing offers numerous advantages for SaaS startups, there are scenarios where it might not be the most suitable approach.
If you can get away with using just a single pricing metric because you know that it scales to match customer-perceived value across all your customer segments and usage profiles, and you don’t have any cost containment issues to worry about, then keep it simple: you don’t need hybrid pricing for now. Your customers will understand your pricing a little faster, and make quicker purchasing decisions.
If your company is in the pre-product-market-fit stage, then you may not yet properly understand the value drivers of your solution and your customers’ willingness to pay. In this case having a hybrid pricing model may create false promises about the value you provide and how it scales. It is better to focus on improving your product and keep pricing rather simple until you feel the pull of reaching product-market-fit and can then ask customers in your ideal customer profile (ICP) about how they value your solution’s features and how that value scales. That may then prompt you to move to a hybrid pricing model as the best way to model that value scaling.
At Wingback we have observed that as B2B SaaS startups scale then more often than not they do need to apply one or more of the hybrid pricing strategies we cover here
Challenges of Implementing Hybrid Pricing
So the use cases and benefits of hybrid pricing strategies are clear. But unfortunately companies can encounter obstacles in deploying them.
Limited Tools and Features
The largest barrier to using hybrid pricing is that many popular subscription management products such as Stripe Billing, Chargebee, Paddle and Recurly were built before the need for hybrid pricing emerged. These products were built for more basic simple subscription models. They often limit a plan to having a single priced element, or they lack support for tracking usage entitlement limits in real-time and applying overages in addition to a base recurring or per-seat fee. This means that they cannot handle the modern hybrid pricing models that you need.
Engineering Teams Get Dragged Into Solving Billing Issues
Implementing hybrid pricing and billing on older subscription management platforms may require additional engineering involvement, leading to increased costs and complexity during the implementation process.
If your subscription management platform does not handle hybrid pricing models out-of-the-box then you will need to custom-build separate subscription flows for each individual priced element in a hybrid plan, hand-craft your own billing portal to show the different elements of each plan with live unbilled usage when required while allowing customers to self-upgrade their plans seamlessly, and jump through some custom integration hoops to show a bill to your customers that combines all elements of your plan in an invoice that is easy to understand.
This can all get unwieldy and fragile quite quickly as you revise your pricing plans over time, grandfathering some customers, migrating others, and always expanding to new customer segments requiring different plan setups.
Revenue Leakage and Confused Customers
Combining multiple hybrid pricing strategies on a platform that is not designed for hybrid billing introduces spiraling complexity in managing customer subscriptions, billing, and invoicing. This leads directly to increased chances of billing errors and revenue leakage.
It will also impact the customer experience when invoices and your billing portal become an embarrassment. Customers will be confused, the rate of billing disputes increases, and invoices are no longer paid promptly.
To overcome these challenges and successfully implement a hybrid pricing strategy, it's crucial to select the right tooling that is specifically designed to support and facilitate hybrid pricing models.
Wingback is a great example of a solution that addresses the challenges associated with hybrid pricing. It is designed to make hybrid pricing implementation seamless, with minimum engineering involvement. By providing a subscription management platform that supports combining different pricing models out of the box, Wingback simplifies the implementation of hybrid pricing strategies and makes it easier to manage customer subscriptions, billing, and invoicing. This, in turn, helps SaaS businesses maintain a positive customer experience while taking advantage of the numerous benefits of hybrid pricing in growing revenues and protecting margins.
Hybrid pricing models are increasingly the hallmark of B2B SaaS companies who have thought deeply about the dynamics of their customer value model, their cost-to-serve and how to match these to their pricing model, using a data-driven approach to set and revise pricing frequently. Such startups are moving towards price optimization.
Hybrid billing allows you to better meet customers needs with a pricing model that they will see as fair and transparent, where the more they use and value your solution, the more they pay. This leads to shorter decision times, increased customer choice, increased conversions, better retention and ultimately stronger revenue and margin expansion for you.
However, implementing hybrid pricing also presents challenges, such as selecting the right tooling and subscription management solution that supports hybrid pricing models. By carefully considering your target audience, aligning your pricing strategy with their unique needs, and investing in a solution like Wingback that is specifically designed for hybrid pricing, your SaaS startup can effectively address these challenges and capitalize on the compelling advantages of hybrid pricing models.