Is a hybrid pricing model (base subscription fee + usage fees) better than a pure usage-based model to ensure a baseline of recurring revenue?

Based on insights from our SaaS pricing book, Price to Scale, a hybrid model—one that includes both a base subscription fee and usage fees—often provides more predictable recurring revenue compared to a pure usage-based model.

Key points include:

• A fixed base fee guarantees that you have a recurring revenue baseline, offering stability and predictability. As noted in our book, this is particularly beneficial when you want to smooth out revenue fluctuations and boost long-term financial visibility.

• The usage fee element still allows you to capture additional value as customers increase their service consumption. This flexibility aligns with the concept of consumption-based pricing discussed in Price to Scale, where pricing models are chosen based on the measurable value delivered to the customer.

• However, our book also explains that if your product is new to the market, clients might initially prefer a simpler, linear (pure usage-based) model because of lower initial costs and fewer commitments. This means that the optimal choice depends on your market maturity and customer adoption rates.

In summary, while a hybrid pricing model typically offers the advantage of ensuring a stable floor of recurring revenue and adjusting to customer growth, its suitability should be evaluated against your product's stage and market dynamics. As our book emphasizes, regularly reassessing and adapting your pricing structure is key to staying competitive in a changing market.