What is a Hybrid Pricing Model?
A hybrid pricing model is when you combine two or more pricing models for your online business. Businesses nowadays have been on the lookout for a variety of different billing strategies in order to both increase their conversions and increase the lifetime value of their customers. Your pricing strategy is a huge part of your overall business strategy and should not be taken lightly. Never underestimate the power of a well-thought-out and well-executed pricing model.
What Are My Options for Pricing Models?
Flat Rate Pricing: A subscription model that charges a fixed fee every month or year.
Tiered pricing: A model that allows for different price ranges to tailor to a variety of customer segments depending on what features are needed most.
Consumption-based pricing: A model where customers pay based on their usage of your product or service.
Per-user pricing: When you charge customers based on how many seats or users have access to your services.
Competitor pricing: Basing the price of your product on that of the market.
Freemium pricing: When you offer a basic free version of your product, which allows customers to try your product for free while enticing them to upgrade to a premium or paid version later on.
How Do I Know If I Have Chosen the Right Pricing Model?
Technically, there is no right answer to that question. Each of the above models can work depending on the style of business and the requirements of your users. With a Hybrid Pricing Model, you can deploy a variation of one or more models to determine which provides the best results for the company and the best experience for the end-user. It is also advisable to audit and adjust your pricing model every 6 months, we’ll get into why you should do that shortly.
Why a Hybrid Pricing Model Might Be Your Best Bet:
Increases Data Collection: With a hybrid model, you are more likely to collect more data through an increase in sign-ups and subscriptions. For example, if you are combining a freemium pricing model with a tiered pricing model, you can accommodate more budgets and remove that barrier for entry which in turn drastically increases your sign-ups with that freemium version available. With Increased data collection, it allows for the opportunity to personalize your marketing campaigns, making them that much more compelling. In a survey carried out by Epsilon, data showed that over 90% of surveyed respondents were more likely to subscribe or purchase if there existed personalized and customizable billing plans.
Allows for Flexibility With Pricing Structures: Hybrid pricing models allow you to experiment and try out different pricing style combinations. Experimenting with various pricing models is extremely profitable and even recommendable. Businesses that undergo regular updates and changes to their pricing strategy witness a 200% increase in their average revenue per user (AVRPU), over others who only update it annually.
Better Forecasting Rates For Revenue: Some pricing models are not as effective as others when forecasting revenue, like with the usage-based model, for example. However, introducing a hybrid pricing model allows you to pair two or more to effectively calculate and predict revenue.
Increases Conversions: Your users are more likely to purchase your services if you give them the right number of options. According to a report carried out by The Journal of Consumer Psychology in 2016, discussing the impact of assortment size on purchase decisions. It was found that increasing the number of available options was positively correlated with the likelihood of consumers making a purchase.
Bonus Tip:
Freemium pricing models work best as a hybrid model. By combining one or more pricing models with a freemium pricing model you are more likely to receive ample user data and improve conversion rates for your business.
Here Are a Few Examples of Companies Using Hybrid Pricing Models:
Hostifi has a hybrid pricing model that combines tiered pricing with a freemium model. In their tiered pricing model, they incorporate a set amount of “seats”, implementing a per-user model combined with the already existing pricing models present.
Gather uses a hybrid pricing model that also incorporates a user-based pricing model with a freemium pricing model. They also incorporate a flat-rate pricing model per user for how they charge their customers as well.
Mailchimp also incorporates a hybrid pricing model by introducing tiered pricing and the freemium pricing model together. This is a popular option used by SaaS companies.
Conclusion
Switching to a hybrid pricing model helps businesses better understand their pricing strategies to determine what works and what does not. In doing so it provides more information on the overall success of your product or service in comparison to the market. Having said that, yes, choosing a variation of two models that work together can require patience and a lot of research. To dive deeper into the subject, check out Pelcro’s latest ebook “6 Examples of Efficient Pricing Models for Subscription Businesses” to understand more about pricing models and which ones are the most suitable for your business.
Here at Pelcro, our goal is to make your journey to a profitable subscription business, smooth and seamless. To learn more about Pelcro, book a Demo with one of our representatives for an exclusive one-on-one product tour, or get started with your free trial right away and see for yourself.