SaaS Pricing Models Compared: Subscription vs. Usage-Based vs. Hybrid

The three dominant SaaS pricing models are pure subscription, usage-based, and hybrid. Each has distinct strengths and weaknesses, and the right choice depends on your product, your customers, and your growth stage. The industry is shifting toward hybrid models that combine predictable base revenue with usage-aligned expansion.

Pure subscription

The subscription model charges a fixed recurring fee for access to the product. Revenue is predictable, customers know what they will spend, and the sales conversation is simple. But revenue is disconnected from value, expansion depends entirely on upsells, and churn is binary. Customers either stay or leave, with no graceful way to contract during lean periods.

Pure subscription works best when usage is relatively uniform across customers and the product delivers ongoing passive value, like security or compliance monitoring.

Usage-based

The usage-based model charges customers based on how much they use the product. Revenue tracks value. Expansion happens on its own as customers use more. And the barrier to getting started is low. But revenue is unpredictable, customers worry about their monthly bill, and sales conversations are harder.

I worked with a SaaS platform where the commercial team wanted to move to usage-based pricing, but customers could not forecast their usage with any accuracy. The anxiety around unpredictable costs was keeping people from signing up. That is the fundamental tension with pure usage models.

Pure usage-based pricing works best when usage varies dramatically across customers and there is a strong, clear correlation between usage and value.

Hybrid

The hybrid model combines a fixed subscription component with a variable usage component. This is where the industry is heading, and it is the model I recommend most often.

Customers pay a base platform fee that covers core capabilities and a baseline level of usage. Beyond that baseline, they pay incrementally based on consumption. This is basically the three-layer architecture in action: base platform, add-ons, and usage. The fixed component gives you predictable revenue and gives the customer budget certainty. The variable component means your revenue matches what customers actually get, and expansion happens naturally.

Hybrid pricing works in most B2B SaaS contexts, particularly when customer usage varies significantly and your product has both a platform component worth a fixed fee and a consumption component worth variable pricing.

Choosing your model

The right model depends on how variable usage is across your customers, how predictable usage is for individual customers, and what your value chain looks like. If most of your value is in platform access, subscription dominates. If most is in consumption, usage dominates. If it is a mix, which is the case for most products, hybrid is the answer.

In my upcoming book, Pricing from the Core, I walk through the full decision framework for choosing your model, including how to design the transition from pure subscription to hybrid without disrupting existing customers. If you want to be notified when it launches, get in touch.