{"id":297559,"date":"2024-03-08T04:54:59","date_gmt":"2024-03-08T12:54:59","guid":{"rendered":"https:\/\/www.saastr.com\/?p=297559"},"modified":"2024-03-07T19:03:27","modified_gmt":"2024-03-08T03:03:27","slug":"how-to-price-and-package-ai-saas-products","status":"publish","type":"post","link":"https:\/\/www.saastr.com\/how-to-price-and-package-ai-saas-products\/","title":{"rendered":"How to Price and Package AI SaaS Products with Unusual Ventures"},"content":{"rendered":"<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">With everything in AI moving so rapidly, what\u2019s the best way to price <a href=\"https:\/\/www.saastr.com\/category\/topics\/ai\/\" target=\"_blank\" rel=\"noopener\">Artificial Intelligence<\/a> products or SaaS tools with custom AI features and integrations? Should it be subscriptions, usage, solutions, or something entirely different? While companies are scrambling to roll out these new tools, they also want reliability and predictability in the value they\u2019re getting from your products, which can make pricing extremely difficult.\u00a0<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">So we asked the expert, Sandhya Hegde, General Partner at Unusual Ventures to share her best practices and trends for pricing and packaging AI products.\u00a0 <\/span><span style=\"font-weight: 400;\">Sandhya has been in the startup ecosystem for about 15 years, with the last two years heavily focused on investing in AI-native startups, primarily on the application and Enterprise software side. <\/span><span style=\"font-weight: 400;\">Over the past year, people have started to recognize how challenging pricing and packaging are for AI products, as well as the competitive pressure. Why is pricing so tricky?\u00a0<\/span><\/p>\n<p><iframe title=\"YouTube video player\" data-src=\"https:\/\/www.youtube.com\/embed\/FT9qI1M0Pj4?si=sDpfNCOMJsN1e7dP\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" class=\"lazyload\" data-load-mode=\"1\"><\/iframe><\/p>\n<h2><span style=\"font-weight: 400;\">The Challenges of Pricing AI Products<\/span><\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297581 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4001-1.jpeg?resize=600%2C324&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"324\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/324;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297581 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4001-1.jpeg?resize=600%2C324&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"324\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Pricing and packaging are more complex today because of three things.\u00a0<\/span><\/p>\n<ol style=\"font-weight: 400;\">\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The costs are dynamic.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Usage is volatile.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">ROI is unproven.\u00a0<\/span><\/li>\n<\/ol>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Let\u2019s look further into each of these.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\"><strong>The Costs Are Dynamic<\/strong>: <\/span><span style=\"font-weight: 400;\">There\u2019s an actual, tangible cost \u2014 dollars per token, cost of hosting, fine-tuning models, etc. If you\u2019re a full stack or model company, there\u2019s the cost of training, pre-training, re-training, the cost of the data itself, and curating that data. The cost of engineering and shipping products is a moving target for startups.\u00a0<\/span><\/p>\n<p><strong>Volatile Usage: <\/strong><span style=\"font-weight: 400;\">The adoption curve is still shifting a lot regarding how much customers use AI products. Some companies have AI features with very low frequency, but you can\u2019t assume usage will stay low. With Notion, for example, you may use it once a week, but you can\u2019t assume that\u2019ll remain the same. The best case is frequency goes up.\u00a0<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Customer behavior is also challenging, especially with usage-based pricing and the potential for fraud. It\u2019s a real technical problem to solve for to keep your pricing and packaging strategy and execution strong.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\"><strong>Unproven ROI:<\/strong> <\/span><span style=\"font-weight: 400;\">On the customer side, one of the big challenges for pricing and packaging is unproven ROI. Customers might ask themselves, \u201cHow do I make a big purchase when I\u2019m not sure what my selection criteria should be? How reliable is this investment? Will it be effective and save or make me money, and how much?\u00a0<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The confluence of these three challenges will slowly get better over time and become more predictable. But we\u2019re certainly not there today.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">A Simple Design Framework for AI Pricing and Packaging<\/span><\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297578 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4002.jpeg?resize=600%2C326&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"326\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/326;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297578 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4002.jpeg?resize=600%2C326&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"326\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">A simple framework you can use to help determine the best pricing and packaging for your product and customer segments is:<\/span><\/p>\n<ol style=\"font-weight: 400;\">\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">A model for your company<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">An actual structure to be trained on\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Operations that allow you to iterate, experiment, and evolve your pricing<\/span><\/li>\n<\/ol>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">This will never be as critical as it is today with the pace of change of your costs and the way customers are adopting the tool.\u00a0<\/span><\/p>\n<h3><span style=\"font-weight: 400;\">A Model for Your Company<\/span><\/h3>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">When it comes to model, AI SaaS companies are converging on hybrid, and not necessarily the way we\u2019ve always talked about hybrid (seats plus some usage). If you\u2019re going up Enterprise, it could be a combination of many things depending on the customer.\u00a0<\/span><\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297577 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4004.jpeg?resize=600%2C344&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"344\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/344;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297577 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4004.jpeg?resize=600%2C344&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"344\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The most common pricing models are:\u00a0<\/span><\/p>\n<ol style=\"font-weight: 400;\">\n<li style=\"font-weight: 400;\"><b>Subscription<\/b><span style=\"font-weight: 400;\"> \u2014 per seat or user, freemium, per product with add-ons<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Consumption<\/b><span style=\"font-weight: 400;\"> \u2014 how much you\u2019re using. Snowflake is a symbol of usage-based pricing.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Solution<\/b><span style=\"font-weight: 400;\"> \u2014 seat + usage + service, custom deployments, personalization. This is an important element to consider if you\u2019re an Enterprise software startup because there\u2019s a ton of change management and hand-holding needed for your biggest customers to be able to adopt your products.\u00a0<\/span><\/li>\n<\/ol>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">A majority of AI SaaS businesses are reporting having a hybrid model, with a combination of two or all of the above pricing models. The exceptions are the ones that have extremely simple single product offerings like Character.AI.\u00a0<\/span><\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297575 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4006.jpeg?resize=600%2C340&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"340\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/340;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297575 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4006.jpeg?resize=600%2C340&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"340\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Where do you start? What is the right model for your company?\u00a0<\/span><\/p>\n<h3><span style=\"font-weight: 400;\">Choosing the Right Pricing Model For Your Product<\/span><\/h3>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Start with two questions.\u00a0<\/span><\/p>\n<ol style=\"font-weight: 400;\">\n<li style=\"font-weight: 400;\"><em><span style=\"font-weight: 400;\">What is the nature of the value you offer?\u00a0<\/span><\/em><\/li>\n<li style=\"font-weight: 400;\"><em><span style=\"font-weight: 400;\">What is the degree of support you need?\u00a0<\/span><\/em><\/li>\n<\/ol>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">There are two simple ways to think of value. Are you saving time? If so, can that higher-quality free time be monetized? AI saves some time, so that is a value prop, but a better question to ask yourself for determining value is, what happens to the time that you save people?\u00a0<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">If you can\u2019t offer people monetizable time, you can\u2019t do usage-based pricing. It\u2019s essential to figure out upfront if your customers require a fixed cost and can\u2019t further monetize the time they\u2019re freeing up or if you can monetize that time by freeing up time to support more customers or increase revenue.\u00a0<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The most important thing you can do is put yourself in your customers\u2019 shoes and ask what they\u2019re optimizing for.\u00a0<\/span><\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297574 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4007.jpeg?resize=600%2C330&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"330\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/330;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297574 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4007.jpeg?resize=600%2C330&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"330\" \/><\/noscript><\/p>\n<ul style=\"font-weight: 400;\">\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><em>Is the most important thing for them a fixed cost?<\/em> If so, keep a simple subscription model. If there\u2019s no way to have variable costs that they can\u2019t predict and are sensitive to, you can\u2019t experiment with other levels easily because the customer won\u2019t allow it.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><em>Does the customer care more about fixed ROI and not fixed costs?<\/em> A good example of this is everything in engineering and data infrastructure. They\u2019re not trying to keep costs fixed. As a data engineer, if the amount of data they\u2019re managing grows, they\u2019re willing to increase the cost because it means the company is growing.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">With bigger companies with a lot of budget, they may optimize for getting the job done. They can\u2019t take the risk of a project failing, and that\u2019s where a services and solution package is critical. They might not care about seats or usage, only that the project is successfully rolled out in the company.\u00a0<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-weight: 400;\">A Pricing Model Comparison\u00a0<\/span><\/h3>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297573 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4008.jpeg?resize=600%2C336&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"336\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/336;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297573 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4008.jpeg?resize=600%2C336&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"336\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">A case study of three companies shows the nuance in pricing models.\u00a0<\/span><\/p>\n<ol style=\"font-weight: 400;\">\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Vizcom \u2014 in the image generation space<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Mosaic ML \u2014 model training and AI infrastructure<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Writer \u2014 in the LLM language generation space<\/span><\/li>\n<\/ol>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">These three AI companies are perfect examples of everything in AI right now and are seeing success in Enterprise. Yet, each has a different pricing model, and some have <\/span><i><span style=\"font-weight: 400;\">different<\/span><\/i><span style=\"font-weight: 400;\"> pricing models for <\/span><i><span style=\"font-weight: 400;\">different<\/span><\/i><span style=\"font-weight: 400;\"> customer segments for the <\/span><i><span style=\"font-weight: 400;\">same<\/span><\/i><span style=\"font-weight: 400;\"> product within the <\/span><i><span style=\"font-weight: 400;\">same<\/span><\/i><span style=\"font-weight: 400;\"> company.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">An Actual Structure to be Trained On\u00a0<\/span><\/h2>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297572 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4009.jpeg?resize=600%2C334&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"334\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/334;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297572 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4009.jpeg?resize=600%2C334&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"334\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">So, you\u2019ve picked a model. Do you understand the underlying structure? Many people consider pricing and packaging as product strategy, where Product or GTM owns it. But pricing and packaging is a full company strategy.\u00a0<\/span><\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297571 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4010.jpeg?resize=600%2C340&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"340\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/340;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297571 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4010.jpeg?resize=600%2C340&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"340\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Everyone owns it. What are the inputs that go into, and what is the value you create for customers that helps determine LTV? What\u2019s your GTM strategy, CAC, engineering quality, etc.?\u00a0<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Pricing and packaging say a lot about who you are trying to differentiate from and win deals away from, and all of this needs to be represented. A lot of people make the mistake of saying, \u201cMy product helps people grow their business, so I should be able to align my pricing to revenue.\u201d\u00a0<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">But even Salesforce doesn\u2019t charge based on deals. They charge based on how many people are using Salesforce.\u00a0<\/span><\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297570 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4011.jpeg?resize=600%2C332&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"332\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/332;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297570 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4011.jpeg?resize=600%2C332&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"332\" \/><\/noscript><\/p>\n<h3><span style=\"font-weight: 400;\">Comparing the GTM Strategy for AI tools Midjourney and Vizcom<\/span><\/h3>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297569 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4012.jpeg?resize=600%2C332&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"332\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/332;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297569 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4012.jpeg?resize=600%2C332&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"332\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Both of these companies use diffusion models to generate images. Pricing for each, and segments within each, will differ to protect Enterprise value while also landing smaller teams within the Enterprise. You need to differentiate what the Enterprise buyer vs. the self-serve buyer cares about.\u00a0<\/span><\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297568 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4013.jpeg?resize=600%2C335&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"335\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/335;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297568 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4013.jpeg?resize=600%2C335&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"335\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Midjourney pricing appears to be seat-based \u2014 $10\/month per user. But in reality, it\u2019s usage-based pricing because the only difference between packages is how much GPU time you\u2019re getting, $4\/hour of GPU time if you\u2019re willing to commit upfront. That\u2019s the entire logic of most of their pricing.\u00a0<\/span><\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297567 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4014.jpeg?resize=600%2C338&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"338\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/338;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297567 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4014.jpeg?resize=600%2C338&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"338\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The big question is, <\/span><i><span style=\"font-weight: 400;\">can this work for teams? <\/span><\/i><span style=\"font-weight: 400;\">Sandhya argues this will never work for a team. If you\u2019re a design manager with ten designers, you have no idea what your Midjourney bill will be at the end of the month because it\u2019s a function of what those ten designers are doing with their time.\u00a0<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">That\u2019s terrifying for a leader, and it won\u2019t work for Enterprise. Ironically, usage-based pricing is much more common in Enterprise products than consumer products. Freelancers and small teams love this model of paying for what you use, while big companies are terrified of being taken advantage of because it\u2019s unreliable.\u00a0<\/span><\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297566 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4015.jpeg?resize=600%2C343&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"343\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/343;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297566 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4015.jpeg?resize=600%2C343&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"343\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Vizcom has a free offering, like Midjourney, and then $50\/month for tiny teams \u2014 mostly individual professional creatives. But, as they go upmarket, they don\u2019t have usage-based pricing without limits. They just have a higher price point for what unlimited usage could look like, plus usage and service bundles for Enterprise with custom models for each company.\u00a0<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">That\u2019s what Enterprise values. Both companies are leveraging the same underlying tech, but they\u2019ve chosen completely different pricing models because their customer segments and GTM strategies are different.\u00a0<\/span><\/p>\n<h3><span style=\"font-weight: 400;\">Engineering Quality Determines Pricing<\/span><\/h3>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-297565 lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4016.jpeg?resize=600%2C338&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"338\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/338;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-medium wp-image-297565\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4016.jpeg?resize=600%2C338&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"338\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Engineering investment is the most important thing determining pricing and packaging if you\u2019re in infrastructure dev tools. The lower your cost basis is, the more you can expand free\/trial access, and the more agile your team will be with custom deployments to support Enterprise use cases.\u00a0<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Every time you ship a new feature, ask yourself these three questions.\u00a0<\/span><\/p>\n<ol style=\"font-weight: 400;\">\n<li style=\"font-weight: 400;\"><em><span style=\"font-weight: 400;\">Are you going to use this to increase ASP or win rate?\u00a0<\/span><\/em><\/li>\n<li style=\"font-weight: 400;\"><em><span style=\"font-weight: 400;\">Can you make your cost basis lower to expand free\/trial access?<\/span><\/em><\/li>\n<li style=\"font-weight: 400;\"><em><span style=\"font-weight: 400;\">Can you do fast custom deployments for Enterprise?\u00a0<\/span><\/em><\/li>\n<\/ol>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Mosaic is a great example of this.\u00a0<\/span><\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297564 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4017.jpeg?resize=600%2C332&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"332\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/332;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297564 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4017.jpeg?resize=600%2C332&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"332\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">They do usage-based pricing and train models. But pay attention to the velocity. In January of \u201823, they said they could train diffusion models for $160k, which was 2.5x less than what it would cost to do it on your own. Then, in February, they already had an update saying it now costs $125k, down from $160k.\u00a0<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It\u2019s a great example of what you need to do in an AI infrastructure company and how important it is to create predictability if you\u2019re doing usage-based pricing. People need to be able to plan how much they will spend on your platform.\u00a0<\/span><\/p>\n<h3><span style=\"font-weight: 400;\">Competitive Positioning and Increasing Value for Customers<\/span><\/h3>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297562 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4019.jpeg?resize=600%2C334&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"334\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/334;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297562 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4019.jpeg?resize=600%2C334&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"334\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">One mistake a lot of folks make is having a premium plan with a free version, and that free version is very limited. All the while, competitors have free trials of the best version of their product, and it makes your tool look silly.\u00a0<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Another mistake people make is going after an SMB segment when there\u2019s a good enough free alternative. The reality is that any market with a good enough free alternative to the SMB-Mid-Market segment isn\u2019t a compelling market.\u00a0<\/span><\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297563 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4018.jpeg?resize=600%2C332&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"332\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/332;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297563 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4018.jpeg?resize=600%2C332&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"332\" \/><\/noscript><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Overall, every company should try to increase the value for customers over time. If you\u2019re not doing that, you probably won\u2019t last. The disruption cycles in software are breakneck, so pricing needs to do a few things.\u00a0<\/span><\/p>\n<ol style=\"font-weight: 400;\">\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The cost of buying your tool should always be much less than the value of using your tool.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Provide enough value difference between you and the next best alternative.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Your cost doesn\u2019t need to increase monotonically.\u00a0<\/span><\/li>\n<\/ol>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Sometimes, your price may decrease because you\u2019re trying to grow Enterprise value, not ASP, so you need to consider whether you\u2019re doing it for win rate or ASP with every new feature release. It could go up and down and needs to be iterative at all times.\u00a0<\/span><\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297561 aligncenter lazyload\" data-src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4020.jpeg?resize=600%2C331&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"331\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 600px; --smush-placeholder-aspect-ratio: 600\/331;\" \/><noscript><img data-recalc-dims=\"1\" decoding=\"async\" class=\"size-medium wp-image-297561 aligncenter\" src=\"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4020.jpeg?resize=600%2C331&#038;quality=70&#038;ssl=1\" alt=\"\" width=\"600\" height=\"331\" \/><\/noscript><\/p>\n<h2><span style=\"font-weight: 400;\">Key Takeaways<\/span><\/h2>\n<ul style=\"font-weight: 400;\">\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Successful AI-native companies are fully hybrid, using different pricing models for each product, package, and customer segment.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Customers want some sort of predictability. It could be cost, ROI, job success, or a combination of all three. So, align your package for that customer segment and what they\u2019re trying to optimize for.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Good packaging and pricing are all about messaging. You need to align with your customers\u2019 mental model of how they buy software and think about tools that work for them.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Pricing and packaging is an all-company strategy. You can\u2019t delegate this to one person. To make it work, every functional strategy should be aligned with what you\u2019re doing with pricing and packaging.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It has to be iterative. A lot of infrastructure needs to be in place to execute well on growing and evolving pricing.\u00a0<\/span><\/li>\n<\/ul>\n<p><iframe title=\"YouTube video player\" data-src=\"https:\/\/www.youtube.com\/embed\/FT9qI1M0Pj4?si=sDpfNCOMJsN1e7dP\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" class=\"lazyload\" data-load-mode=\"1\"><\/iframe><\/p>\n","protected":false},"excerpt":{"rendered":"<p>With everything in AI moving so rapidly, what\u2019s the best way to price Artificial Intelligence products or SaaS tools with custom AI features and integrations? Should it be subscriptions, usage, solutions, or something entirely different? Sandhya Hegde, General Partner at Unusual Ventures to share her best practices and trends for pricing and packaging AI SaaS products.\u00a0<\/p>\n","protected":false},"author":13,"featured_media":297615,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","om_disable_all_campaigns":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpscp_schedule_draft_date":"","_wpscp_schedule_republish_date":"","_wpscppro_advance_schedule":false,"_wpscppro_advance_schedule_date":"","_wpscppro_custom_social_share_image":0,"_facebook_share_type":"","_twitter_share_type":"","_linkedin_share_type":"","_pinterest_share_type":"","_linkedin_share_type_page":"","_instagram_share_type":"","_medium_share_type":"","_threads_share_type":"","_selected_social_profile":[]},"categories":[24898,31,29,68,122,20,24894],"tags":[],"class_list":["post-297559","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ai","category-blog-posts","category-early","category-featured-posts","category-featured-videos","category-videos","category-workshop-wednesdays"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/www.saastr.com\/wp-content\/uploads\/2024\/03\/YT-Thumbnail-Workshop-Wednesday-Speaker-Screenshot-5.png?fit=1000%2C563&quality=70&ssl=1","jetpack_shortlink":"https:\/\/wp.me\/p5oib2-1fpl","jetpack_sharing_enabled":true,"fifu_image_url":"https:\/\/www.saastr.com\/wp-content\/uploads\/2024\/03\/IMG_4001-1-600x324.jpeg","_links":{"self":[{"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/posts\/297559","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/users\/13"}],"replies":[{"embeddable":true,"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/comments?post=297559"}],"version-history":[{"count":0,"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/posts\/297559\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/media\/297615"}],"wp:attachment":[{"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/media?parent=297559"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/categories?post=297559"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.saastr.com\/wp-json\/wp\/v2\/tags?post=297559"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}