Hybrid Pricing

What is hybrid pricing

Hybrid pricing is a family of pricing models that combine elements of both subscription and usage-based pricing. In hybrid models, customers are charged a recurring base fee every billing period for access to a product or service; this base payment generally includes some set amount of usage, and if the users passes those limits they would be charged overages. Many hybrid plans offer customers the ability to purchase additional usage in blocks for specific features or product items, which gives customers greater flexibility to pay for only what they consume.

Hybrid pricing is more open-ended by nature, so there are many different permutations and varieties of hybrid plans. Each company’s fixed and usage-based elements can vary, as can the way that they package them. What they all have in common is a regular fee with the potential for additional usage-based charges on top.

Benefits

The reason we’re seeing hybrid pricing succeed over both pure-play subscription and usage-based models, is how it benefits both the customers and vendors.

For vendors, hybrid pricing offers the benefits of usage-based pricing such as reduced churn and improved customer trust, while still generating predictable, recurring revenue. Hybrid pricing models also allow vendors to increase the flexibility around packaging and pricing to win more contested deals. Since hybrid plans are built around both committed and usage-based spends, the balance between the two categories can be negotiated to meet the needs of both parties - flexibility and pricing control for customers, and revenue predictability with a pathway to growth for vendors.

In a subscription context, customers have no control over their spend, and the cost-value ratio is set at the moment of contract signing. In the event that the customer uses the product less than anticipated when contracting, they are losing out on the deal. Likewise, if circumstances change such as a suddenly challenging business environment, in a subscription model, customers have the option to bite the bullet and continue paying, or churn. On the other hand, in a purely usage-based model there is ample spend control, but less predictability, as accurately predicting usage is much more difficult than budgeting for a fixed fee. It only takes one period of significantly increased usage to produce an unexpectedly large bill and potentially damage customer relationships.

Hybrid pricing allows customers to balance predictability with flexibility. There is an agreed-upon fixed spend that corresponds to some usage, and customers then have the option to scale up or down with additional usage-based charges as needed. Hybrid pricing allows the customer to proactively base their usage around their current situation, budget, and priorities to ensure that the cost-value ratio is always remaining in balance.

Examples

Here are some examples of modern hybrid pricing from a few well-known vendors:

This first plan belongs to Zapier. For each tier, there is a set monthly fee that corresponds to some number of usage - in this case, the number of automated tasks that can be run each month. Customers have the option to purchase additional blocks of tasks for each plan as needed.

The next plan belongs to GitHub. This plan more closely resembles a traditional subscription model, with three tiers each having a fixed annual, each higher tier having additional features available, and greater usage limits for CI/CD minutes per month and GB of Packages storage. Users can purchase additional CI/CD minutes and package storage as needed.