SaaS Brief

Navigating the Complexities of Hybrid SaaS Billing Models

Navigating SaaS Billing

The SaaS industry and its various spin-off sectors have introduced a dizzying number of innovations into the business arena. One of the most important of these is pricing flexibility. 

Companies now have more freedom than ever to experiment with different pricing structures, as well as cutting-edge tech that helps you understand and learn from:

  • Your company’s past. Billing and accounting software can track and analyze revenue results from past and current pricing strategies to help you capitalize on what works best for your particular product.
  • Your company’s future. Powerful automated forecasting tools enable you to map out the results of different pricing scenarios far into the future, taking the guesswork out of your pricing models entirely.

In other words, there’s no excuse for not being a trailblazer and charting the best path forward with regard to your SaaS billing model

And as a CFO, you and your SaaS accounting team will be responsible for doing this anyway. So you might as well do it successfully. Here’s how. 

Laying the Groundwork for Optimized Billing 

Choosing the right SaaS billing model for your business is a journey rather than a destination. Companies’ billing and pricing practices evolve as their services develop and change and their user base expands to new market segments.

Developing a profitable pricing strategy is rarely a story of overnight success. Try to view yourself as a scientist running an ongoing pricing experiment and tracking your findings rather than hunting for a “golden ticket” solution.

Here are three quick tips to help you lay the groundwork for successful hybrid billing experimentation:

  • Do your market research. Targeted research is one of the most critical steps in devising a winning pricing strategy. The more deeply you understand your customers, your competitors, and the pros and cons of different common pricing strategies in your market, the better equipped you’ll be to implement your hybrid pricing approach.
  • Enlist the magic of automation. Automated accounting tools like Sage Intacct let SaaS CFOs and their teams accomplish more in less time and with less stress. If your team is still relying on manual spreadsheet-based workflows, you’re standing in the way of your progress and success.
  • Centralize your data. Aside from being slow and cumbersome, another problem with manual accounting practices is their lack of data centralization. Companies that rely on manual processes tend to have their data scattered across different departments. By centralizing your data into one location that all departments can access, you’ll make it much easier to roll out new pricing strategies with minimal impact on your revenue and accounting operations.

Once you’ve done all this, it’s time to consider which hybrid billing model you’re going to take for a test drive.

Hybrid Billing Options for SaaS Companies 

When you’re deciding which pricing model to use, it can be helpful to look at what other SaaS companies are doing and why. 

Here are four of the most common hybrid pricing models and some reasons why each one might be a strong contender for your pricing model: 

  • Feature-based subscription tiers. Many SaaS startups give their customers 2 to 5 subscription tiers to choose from. Each ascending tier allows users to access more features, but each also costs more. This is a popular approach in SaaS finance because it casts a wide net: you’ll be able to attract price-insensitive and more frugal customers at the same time.
  • Overage-based billing. Overage pricing is a combination of flat-rate and usage-based pricing. Customers pay a flat monthly rate for a preset amount of service and then pay extra for any services that exceed their monthly limit. This strategy is effective because it allows you to keep drawing revenue from customers that exceed their usage limit rather than simply shutting off access until their next billing cycle arrives.
  • Company credit purchases. Store credit pricing structures are a way to expand your revenue stream beyond basic monthly subscriptions. In a nutshell, this approach requires customers to use online credits to use their SaaS subscription. Often, companies will charge a flat monthly fee that guarantees a certain number of online credits, and then customers can buy more at an additional cost if they run out.
  • Give your customers a free sample. The enticement of getting something for free is always a powerful sales technique. Many SaaS companies use this to their advantage by offering a small sample of their services for free, often with limited functionality. This free tier is known as a “freemium,” and it’s meant to give customers a glimpse of what your product can offer so they’ll sign up for the full version.

Additionally, here are eight other billing strategies for hybrid and consumption billing.  

  • Minimum: minimum price points based on usage
  • Flat Rate: fixed fee regardless of usage
  • Standard, Volume and Flat Rate Tiered: various price points for ranges of usage
  • Threshold: pricing changes based on usage
  • Rollover: usage allocated not used in one service period is shifted to the next
  • Pay-as-you-go: usage-based pricing, paying as the customers consumes
  • Time-based: pricing set on a fixed time, typical of subscription offers
  • Overage: fees for using more than the allotment

Don’t view these as the limits of your pricing possibilities, though. The beauty of hybrid billing models is that they allow you to experiment and evolve continuously.

Hybrid Billing is for Pricing Innovators

Financial automation is vital for researching and seamlessly rolling out your pricing strategy. Learn more about the relationship between automation and effective pricing rollout in our eBook "CFO 3.0 - Digital Transformation Beyond Financial Management."

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