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SaaS Pricing
Public • 484 • Free
7 contributions to SaaS Pricing
12d ago in
How to price AI in SaaS
I'm writing a guest chapter on AI pricing for another authors upcoming book. So I'm thinking about this a lot lately, and wanted to give you a sneak-preview of a linkedin post that will come out later next week. - I've done maybe 10 pricing projects involving significant AI functionality this year. Here is how I think about it. AI should be considered a 2-layer stack: 1️⃣ The AI compute 'fuel' (i.e. token pricing at OpenAI) 2️⃣ The AI solution (i.e. the value you add on top of AI) The dilemma with AI pricing is that currently: ◾ Fuel is expensive - at least way more so than traditional SaaS. ◾ Solutions are immature and early stage, not yet adding a lot of value. So any AI pricing model needs to both work today AND tomorrow. AI PRICING TODAY: 🔹 Charges usage-based on fuel consumption to ensure costs are covered, as usage patterns of customers is often unpredictable. 🔹 Is mostly focused on low barriers to entry to get users onboarded in order to develop the solution layer and get data on behaviour and cost patterns. 👉 This is unsustainable as fuel costs will drop and 2025 customer will refuse to pay a price-per-token (or token equivalent) that is based on 2024 token costs. This is especially true for enterprise. AI PRICING TOMORROW: 🔹 Charges based on the outcome created by the solution layer and just factors in fuel costs in the use case. 🔹 Protects against cost-downside of over-usage with 'fair usage limits'. HOW I SOLVE FOR THE TODAY-TOMORROW PROBLEM IN AI PRICING 🔸 Focus on speed: just get usage and adoption as fast as possible. You likely have a core non-AI product that monetizes just fine. Consider AI a 'development budget' and focus on profitability later. 🔸 Tell customers you are BOTH charging for fuel and for a solution outcome. Educate them. But keep it 90% fuel and 10% solution early on. 🔸 Over time: shift $$ from fuel to solution pricing. Cut Fuel pricing aggressively, even anticipating future cost reductions. Consider solution pricing separately and from a value perspective.
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New comment 10d ago
3 likes • 12d
Fully agreed with enabling AI usage early on to gain data. To price for the future the AI has to be an integral part of the solution. It seems that many AI functionalities are slap-ons equivalent of copying and pasting a chatGPT response. To be able to charge for the future, the AI has to do something that would otherwise be too difficult or even impossible to do. We had two start-up cases with LLMs at the core of the value proposition: 1. E-commerce solution - the AI assistant had a major impact on key KPI's , but only a low % of site visitors were using it. We used this to create a future benchmark - with each iteration of the product the % of users will increase, leading to higher profitability. We set the price so the expected (benchmark-based) ROI was at 10x with 1% adoption. By jumping in early the client could secure their price for the next 2 years and impact the development of the tool. 2. Indsutry-specific AI assistant - the founders created an LLM that is able to become an expert in a niche topic and generate answers tailored to a specific case. This allows a degree of information synthesis that would be otherwise difficult to achieve. By understanding the impact on the user and the business, we benchmarked the price of a typical ICP project and found a price-point that is hard to say no to, which vastly exceeds fuel costs.
30d ago in
Intellectual Property ownership for SaaS Startups?
Hi Everyone I wonder if you have experiences or opinions about the importance (or not) of having copyrights or patents (or alike) finding funding for a B2B SaaS startup. I understand it is "better", but is it a necessity? Or.... it depends. My case is scaling something that is working. The application enables pricing/selling more value based in traditional industries, extremely fast, tested/used in Field Service. Scaling means getting people on-board (further development, marketing/sales), and financing. If very valid, any sources where I can learn more about Intellectual Property? Should this be one of my top priorities? Is there any other alternatives? With a Smile, JJ
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New comment 29d ago
3 likes • 29d
From my experience as a cofounder of a non-tech start-up, where we developed and patented an innovation for the construction industry this is my take: - Before you gain traction no one is willing to take the risk and copy something that is not yet proven to be commercially successful - When you have some success, it is more likely that you will be acquired by a bigger company (cheaper than repeating mistakes), if there is a good fit (your invention enhances their value proposition) - If you become very successful, a patent will not help because there is more than one way to create tech that does X, and you need to be different only by 20% to bypass patent laws Anyway, good luck!
Sep 30 in
Teardown request | Flowscape
https://flowscapesolutions.com/price I'm in the board of the company and we are re-considering our build. We are facing a specific obstacle where we with the soft and hardware solutions, especially by the usage of our analytics product allow customers to save money by actually understanding their office usage. The problems is that this practically contracts our contract as its less office, rooms Etc. Large Enterprise. Often public tenders. Hardware and software. Any tips?
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New comment Oct 5
3 likes • Oct 1
Hey Viktor, I think this is a very interesting case. Based on the information you provided and what I've found on the page here is my diagnosis: Issue: Misaligned incentives. The more value you bring, the less money you get. Probable cause: Basing your metric on hardware. Each desk needs hardware, so by default it became your metric for software. Possible solution: You provide value in two ways: - By increasing employees productivity (increasing deep-work time by minimizing the chance of distraction, decreasing time needed for conference room management etc.). By quantifying the average effect you provide you could create a metric based on that productivity increase (times number of employees). Therefore, the more employees, and the higher the productivity increase the more you earn. Incentives aligned. - By optimizing the amount of space needed for a set number of employees. The caveat here is that this is more akin to a non-recurring consulting project than constantly provided value. Therefore a potential solution would be a success fee of 10% of the yearly cost of freed office space. Could be either a one-off payment or a 12-month installment. Incentives aligned. What is left is the issue of hardware that is no longer needed - I suppose an exit fee based on freed up desks would be highly rated on all 3 key metrics; value (decision makers will want to free up office space), fairness (you need to refurbish your devices) and density (each piece of equipment = one desk / room / floor). Hope this perspective helps!
Sep 19 in
How to get your first 20 SaaS customers with 0 followers
I recently joined as a growth partner at a LeadGen company. We help founders get customers for their SaaS by using cold email automations. ❌ But I'm not here to promote that or talk about what we do. ❌ I am more curious about what founders generally do. 🤔 How do you ship and grow a SaaS if you have 0 audience? What are your client acquisition strategies? What roadblocks do you guys face? Cold email automation is no wizardry. I'm sure many of you must be using it as well. What has your experience been with it? 👍/👎 Planning to drop a few good email scripts & automation strategies that have helped our clients get their first 20 customers. Would love to hear other pain points you guys are facing with growth that I can address.
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New comment Sep 20
1 like • Sep 19
Generally speaking you are likely to build a product around an area of expertise of at least one of the founders. First clients are likely to be direct pitches among their network and to acquaintances during industry events. This allows for fast feedback on an elevator pitch, which is the first step to effective messaging.
Aug 29 in
Why Pricing Ops as a Function is inexistent? Any examples of companies with PriceOps?
One of the most puzzling questions I have as a management consultant on Strategy & Margin is the lack of PriceOps. We know research shows that companies that evaluate, adjust and change pricing often, grow several folds faster. We start to see RevenueOps adopted in some organizations (I created RevOps Transformations at PwC), but PricingOps is a very important part of RevOps. I think Pricing should be considered a core function of a business, and not a standalone project done when... well, we are running out of money or we are raising a new round. Any thoughts on this?
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New comment 25d ago
0 likes • Sep 18
I think the current zeitgiest boils down to the Uber uber-bet (they haven't made any money yet): If you are big enough, you can dictate prices. Implications: - Users, market size and growth are the main metrics by which you value a company - Therefore, as long as you grow in users, there is always a bigger fish that will invest - Therefore EBITDA has little impact on your value - Therefore you will make more money with a big IPO exit than by creating a sustainable business model - Exponential revenue and profit growth (aka the golden hockey stick) "when we get there" is a myth used to sell overpriced stock My bet is that this bubble of pump-and-dumps has began to pop (private equity did its part to show how unsustainable it is in other industries) and soon we will see a volatile market with many consolidations and a sudden change of course to self-sustainability. Anyhow - it's a good moment to be a pricing expert.
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Active 18h ago
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