SaaS Pricing Models: Tiered, Usage-Based & Hybrid Strategies

Software-as-a-service (SaaS). It’s not about you having a product and being successful. Pricing of your product also matters. Most people can afford a SaaS product if its pricing is reasonable. If I talk about shopping, people ask the price of the same product at different brands, and then they purchase from where its price is reasonable. So, to get value from different customers, you need to set a well-designed pricing strategy. It will encourage customers to do upgrades and increase revenue and customer numbers.

A challenge here: if you are not balancing price, you are at a loss. How? If you set the price of your product too high, there is a risk that you will lose your customers. They will go to your competitors. And, if you set the price of your product too low, you will face a loss in money. What should you do then? Don’t worry… here is the guide for you.

Best SaaS pricing models maintain a balance; they are simple. Customers can understand easily. And such types of SaaS products are flexible to scale with the needs of customers.

These days, three SaaS models are in the market:

• Tiered pricing
• Usage-based pricing
• Hybrid

Each model has its strengths, weaknesses, and ideal use cases.

Why SaaS Pricing Models Are Important?

SaaS product development companies. Work differently compared to traditional software businesses. SaaS products give recurring revenue, with monthly or yearly pricing. Instead of one-time license scales, as in traditional software. In this way, pricing has long-term advantages:

• This model gives transparency about pricing. And it makes the onboarding process easy.
• Retention rate. When customers feel they are getting fair value. They are less likely to churn
• A scalable model ensures that the revenue increases when customers grow in size and number.
• When your prices are reasonable, your product stands out in the market.

In short, pricing is not just about covering costs. It’s a strategic way for growth. So, set your prices fairly. It’s just like SaaS product development, where innovation is necessary.  SaaS pricing should also be continuously improved to stay aligned with customer expectations.

1. Tiered Pricing Model

Tiered Pricing Model. This is the most used SaaS pricing model. In this model, companies create multiple subscription plans. For instance: Basic, Pro, and Enterprise. Each subscription plan has different features, limits, and prices. This is to help customers, so they can choose the plan that fits their needs.

How does this model work?

• Startups can start with a low price plan, but large businesses and enterprises can choose a pro or enterprise plan to have more advanced features.
• Fixed monthly or annual subscriptions are a way to make revenue prediction easier.
• When businesses grow, they upgrade to higher plans.

Examples:

• One most prominent examples is Slack. It offers a free plan to attract small teams. But later it charges for additional features like unlimited message history. And for integrations.
• HubSpot is also an example of this pricing model.
• Dropbox is an example of a Tiered pricing Model

Best Practices to Use This Model:

• Offer only 3–4 plans; too many options can confuse your customers.
• Set features for each tier/plan, like number of users, storage limit, or premium tools
• Give them a free trial or freemium. It will encourage them to purchase a plan
• Use charm prices. For example $49 instead of $50, $39 instead of $40, etc.

2. Usage-Based Pricing (Pay-as-You-Go)

This model is a “pay-as-you-go” model. It means customers are charged for what they use. Instead of paying a complete fee, they just pay for what they use.

This model is common for API, infrastructure, and data-heavy services. In this model, customers pay per API call, gigabyte of storage, or number of transactions.

How does it work?

• Customers don’t feel they have paid more. Payment is based on what they use.
• Small businesses can start at a minimum cost
• When the customers grow, their usage also increases. This way, your revenue increases

Examples:

• Amazon Web Services (AWS) charges for hours, storage, and other metrics.
• Twilio
• Snowflake

How to Implement?

• Choose the clear metrics. You have to decide what to measure. For example: users, storage, transactions.
• It gives transparency. This model gives dashboards for customers to check the usage in real-time.
• Provide usage alerts and limits to avoid the “bill shock”.
• Offer discounts for enterprises to encourage loyalty

3. Hybrid Pricing Model

Hybrid Pricing Model. It consists of both tiered plans and usage-based charges. Customers pay subscription fees for core services, and additional fees if they exceed certain limits.

For example, a SaaS development company may charge $88/month for a subscription plan that includes  90 users. With an additional $0.40 per user if the limit exceeds 90 users.

How does it work?

• This model gives revenue stability. Subscriptions provide a predictable cash flow.
• This model gives flexibility. It captures high-value customers.
• Gradually, businesses purchase higher tiers and generate more usage revenue.

Examples:

• Zoom charges a flat fee for its plans, but adds extra free for webinars, storage, or attendees beyond a certain limit.
• Mailchimp
• Salesforce

How to Implement?

• Set a core plan. Provide stability with a flat subscription.
• Charge for usage-based. For features like integrations, storage, or premium tools.
• Communicate clearly. Don’t rush by explaining with examples.
• Give them flexibility. Let customers shift between the tiers easily when their needs rise.

How to Choose the Right Pricing Model

The selection of the pricing model depends on “product type”, “customer base”, and “stage of growth”.

• SaaS Startups. They benefit from tiered or freemium models to attract initial users.
• API-first or infrastructure companies. They get an advantage from the “pay-as-you-go” model.
• Large SaaS platforms. They choose hybrid models to balance predictable revenue with scalability.

Ask yourself:

• Does using my product make it more valuable?
• Small and enterprise customers have very different needs. Does my product meet that?
• Can complex models be handled by my billing system?

Pricing strategies should align with your SaaS product development strategy. If your team is unable to understand what to choose, take help from a SaaS software development company.

Conclusion

Your Saas pricing model defines your growth. Tiered pricing models work best for SaaS products with clear feature progression. Usage-based (pay-as-you-go) pricing model sets costs with customer value, especially for APIs and data services. Hybrid models are best for both. And give stability and scalability. Just as in SaaS product development, innovation and testing are necessary. The key is to experiment, collect the feedback, and refine over time. Pricing is never fixed. It changes with your product, market, and customers.