Use Case

Hybrid Pricing Plans

Enjoy the benefits of both approaches with recurring fixed and usage-based elements together in one pricing plan.

Amberflo Usage-Based Pricing Model

Motivation

Another common example of usage-based pricing is a hybrid approach that includes a recurring fixed component combined with one or more usage-based elements. This is another way to add predictability (along with the prepaid example) to the usage-based context and help to avoid or mitigate those unpredictable spikes and dips in usage (and revenue).  This approach can also be used to transition from a more traditional seat-based or subscription model to a usage-based model by offering some elements on a usage-basis without upending the existing billing framework. If it is on the strategic roadmap to fully transition to usage-based pricing, the flexibility of the usage-based components (and the underlying metering infrastructure that enable it) allow users to seamlessly iterate the usage-based pricing plans to include more and more of the platform or portfolio, while always preserving the ability to charge a recurring fixed rate.

Implementation

The hybrid approach is really a class of approaches that can separated into two groups by a key distinction: the recurring fixed charge can either serve as a subscription fee that offers unlimited access to a set of capabilities or services, with separate services or capabilities that users would use on top of those charged on a pay-as-you-go basis, or the fixed charge can serve as prepayment for a set amount of usage, with usage over this amount charged on a pay-as-you-go basis.

In this first case, consider a data storage application that offers analytics and forecasting on the stored data as an additional capability. In this case, the vendor may want to penetrate the market by offering data storage at a low, fixed monthly rate, but then monetize what users do with that data once it is ingested to the platform on a usage basis. In this case, the recurring fixed charge would enable users to ingest data on the platform, (the data volume and types would likely still be metered though not associated with a Product Item in the Pricing Plan) then the analytics, forecasting, and other value-add capabilities would be metered and charged as Product Items on the Pricing Plan on a pay-as-you-go basis.

In the second case, consider a medium-to-large SaaS vendor that is looking to IPO as its next phase of growth. The company wants to implement usage-based pricing for all of the benefits to revenue growth and investor perception that it offers, but it also requires predictability and the ability to forecast revenues and finances in order to prepare the filings and investor documents needed to IPO. In this case, a hybrid approach would offer the best-of-both worlds scenario: the recurring fixed charge would serve as prepayment for usage (the amount is determined by the Product Item rates). Throughout the payment period, usage is drawn down against the prepaid amount; if the usage surpasses this amount, overage is charged on a pay-as-you-go basis (determined by the Product Item rates) and then added to the next invoice. The customers’ usage is never interrupted, they simply pay the additional amount, if applicable, with their next bill. There is the option to carry-over unused prepaid usage or have this expire at the end of the month, depending on the vendor pricing strategy.

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