Strategy, Legal & Operations

Why hybrid models are trending for SaaS companies

Learn how SaaS companies are using hybrid billing models to enhance customer convenience, ensure long-term profitability, and draw new users.

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Hybrid billing is an increasingly popular pricing model for SaaS companies. Merging two or more billing models has an obvious draw since it can help companies start simple with a PLG billing model, and then expand to more complex, higher ACV contracts. That’s a large part of the appeal of hybrid billing, though there are certainly other benefits, such as enhancing customer convenience, ensuring long-term profitability, and drawing new users to products. 

Despite their popularity with SaaS companies, hybrid billing models are almost guaranteed to be less straightforward than their singular-approach counterparts. 

As a SaaS CFO, you might have encountered some of those complexities before. We’ll show you how to reduce or eliminate them with modern technology. Additionally, this article emphasizes the importance of cloud-based accounting software for automation, forecasting, and reporting to optimize hybrid billing models – helping you improve revenue and customer satisfaction.  

What is a hybrid billing model?

Hybrid billing is a SaaS pricing strategy that combines two or more different pricing models to create a new one aimed at maximizing profits while improving the customer experience. Software companies do this in order to maximize their long-term revenue and provide a better customer experience. 

Let’s look at an example. 

Let’s say a B2B project management SaaS firm uses an overage billing model. Initially, the company just charges a flat rate for their subscription services, as many startups tend to do when they’re just finding their footing. 

But after analyzing their usage data with automated software, they had an epiphany. While most buyers logged the same number of usage-based hours each month, about 25% of their customers would significantly surpass that average. However, it wasn’t the same subscribers each month.  

That makes sense because a certain percentage of corporate projects are bound to lag. The company then adopted overage-based hybrid billing to capture and profit from those surplus usage hours logged by behind-schedule teams. 

The firm lowered its baseline subscription price, which its customers loved. Moreover, it reliably recouped and exceeded that revenue by charging overage fees past a specific usage limit. It was a win for all involved – that’s the power of a well-executed hybrid billing strategy. 

Why is hybrid billing so popular in SaaS?

Why is hybrid billing so popular among SaaS companies, and what does your firm stand to gain by adopting it? In essence, it’s a fantastic way to: 

  • Enhance customer convenience: If customers feel they’re billed fairly and conveniently, a large portion of their ongoing sales resistance will drop. Remember, recurring billing calls for customers to repeatedly justify those charges on a regular cadence. A little convenience goes a long way.
  • Ensure long-term profitability: The emergence and popularity of the hybrid billing model for SaaS companies has granted firms even more freedom to mix and match to find their revenue “golden formula.”
  • Draw new users to your products: The freemium hybrid billing model, in which users are given a free trial before their card is charged, is an effective way to boost your user base. (Other pricing strategies can serve the same function if they lower initial sales resistance.)

Let’s move on to an equally important point. 

H2: How to know when you’ve got the right hybrid billing model

Billing tactics alone won’t guarantee success. There’s one more missing piece to the hybrid billing equation: cloud-based billing and financial software. 

Automation eliminates the guesswork from pricing decisions and brings companies financial security by allowing them to more reliably understand outcomes ahead of time.

Do you have the forecasting tools for hybrid billing?

Automated forecasting allows finance teams to run detailed billing forecasts far into the future for different scenarios and inputs. Having certainty that you’ve optimized your hybrid pricing is almost impossible unless you’ve run comparative forecasts on different plans. 

Can your reporting abilities support hybrid billing?

Finance teams need granular reporting capabilities to supplement their forecasting efforts. Forecasting helps you understand the future, but reporting helps you make real-time sense of the financial realities around you. 

And with the help of cloud-based reporting on transactions, predictive KPIs, and everything in between, you’ll never have to fret about justifying your pricing choices at upcoming board meetings.

Take command of your subscription billing model

Many SaaS companies have implemented a forward-thinking billing model, but are unsure if it’s fully optimized. 

To check your pricing model against SaaS billing tips from industry pros, take a look at our infographic: 5 Steps to Prove Out and Scale Your Subscription Model.