Detailed Notes
In Part 2 of our interview with Dan Balcauski (Founder & Chief Pricing Officer at Product Tranquility), we explore tiered pricing in the AI era — how SaaS companies can package AI features in a way customers understand, while still protecting margins as AI costs become real and variable.
We talk through why “good, better, best” tiers are showing up everywhere, when AI should be included in higher tiers vs sold as an add-on, and why token-based pricing often creates friction for both buyers and sales teams.
Key topics in this episode • Why AI is changing SaaS pricing faster than most teams expect • How tiered pricing helps align value and margin reality • When to put AI in Better/Best vs when to create an add-on • A practical example: pricing AI by outcomes (not tokens) • How to choose usage metrics customers actually understand
🌐 Develpreneur / Building Better Developers: https://develpreneur.com/tiered-pricing-ai-era
*Follow-us on:*
* [email protected] * https://develpreneur.com/ * https://www.youtube.com/@develpreneur * https://facebook.com/Develpreneur * https://x.com/develpreneur * https://www.linkedin.com/company/develpreneur/
Subscribe for more episodes on building better products, teams, and businesses.
Transcript Text
Well, hello and welcome back. We are here continuing our season of building better foundations. We are building better developers, the developer podcast. I happen to be Rob Broadhead, a founder of developer better building better developers, also the founder of RB Consulting, where we help you assess your technology and build a roadmap to success. Good things and bad things. I have been good things. I have been talking about like technology and cool tools and stuff like that recently and have found that there are like I said there's just a lot of neat things I've been able to do that allow me to really like embrace digital nomad and all of those kinds of things having a you know a virtual office uh being able to have conversations with people being able to keep in touch and it's it's really been awesome. This is a a really good thing. Uh I really enjoy it. So this is in the plus column. Um the negative column is doing so now I have more of a feel like I'm in a studio when I do these things. So I have like bright lights on me and things like that that drive me a little bit nuts or maybe nutser a little bit more beyond where I normally my sanity level normally lies much like my co-host who drives me crazy on a regular basis for a wide range of reasons. But go ahead and introduce yourself. Hey everyone, my name is Michael Malash. I'm one of the co-founders of developer building better developers. I'm also the founder of Envision QA where we build and test custom software that helps businesses run smoother and grow faster. Uh good thing bad thing uh good thing uh said technology. Uh I like playing with gadgets and that and uh I I love playing with those little studio things and video uh equipment. Uh bad thing is the audio editing tools are a pain in the butt. It's like one tool works great for one thing, another tool works great for another, but unless you pay a lot of money, you can't really do it all in one. So, it sometimes these edits get a little complicated. I will say that of the tools that we've played around with over the years, although I did it manually for a long time, uh Adobe's tools were are topnotch. Uh although my son who does a lot of this would actually argue some of those, there are some better tools out there now. Uh I found actually descript has been a is a really good tool to take a look at and it does do uh it has progressed very well and very quickly. So uh but this is an area where there's a lot of change because of AI and stuff like that. So I would say check your new tools on a regular basis because there are cool stuff out there and maybe a better price point. All of that being said, let us now return to our conversation with Dan Boowski and we're going to talk more about pricing. And yeah, we're going to range far and wide, but pencils up because I think you're going to want to take notes. There's some really good uh areas, even areas that we don't dig into necessarily to go too deep. Uh but we will have links in the show notes and all that kind of good stuff for you to check in with Dan at another time and see if maybe you can have a conversation with him to go deeper in those areas. Here we go back where we left off in our conversation with Dan. >> I love that. Um, so I have one more question. I'll pass it back to Rob. So where do you see in this modern age of AI SAS pricing going over the next few years? >> Oh, big big question. >> There's so many different areas to touch on here, so I'll try to boil it down to a couple. I think one thing that we're seeing right now is an incredible amount of dynamism in the software pricing space that maybe we've not seen for a very long time. I think probably the last thing it was comparable to was the transition from perpetual to SAS models maybe about 15 years ago at this point. So, one of the things that's happening is that you've seen competitive dynamics unlike anything you're ever seeing at the sort of foundational model layer. And I think there's there's kind of two there's multiple battlefronts here, which is one of the reasons why it's so complicated. If we just focus, for example, on say the foundational AI model companies, you see every week they're oneuping each other with a, you know, Anthropic just did this, you know, a week or two ago when they launched Opus 45. it's now the best model and they dropped the price right what was you know so you just by that alone you could see sort of the dynamics uh that are that are happening um and so we're seeing constant you know iteration and update as folks try to uh figure that part out I would say on the other side you know where we might talk about AI enabled uh software platforms so you know every board of directors has asked their CEO since the launch of chat GBT in late 2022 do what are we doing with about AI and we've seen a lot of interesting experiments. I don't know that anything has you know fully uh you know been a home run yet but um so everyone is baking AI enabled capabilities into their products and so what we're seeing there is a very real tension between how do we monetize this thing? Is it ready to monetize? And how do we manage margin? Because software has got to exist in a very privileged position of world industries where, you know, if I sell you hammers, I have to care how much it costs me to land that hammer manufactured to put it into Home Depot. Like, I can't just be like, I'll I'll I'll charge you a $150 per hammer and like I'll figure it out on the back end. Like, no, you're not going to be in business very long. But software companies forever have been able to do that. There's been some exception but you know the marginal cost to serve because network storage compute has been almost infinite testably small per you know incremental user basis that they've been able to ignore such things and so now there's a real trade-off that those companies are facing. Okay, we're now seeing a you know the CFO is seeing a giant check every month going out the door to OpenAI or Anthropic or to Google. How are we what are we doing about this? And so we're seeing a lot of comp what what I think fundamentally is changing is that companies are having to look at their pricing a lot sooner in their life cycle to account for this. Uh and there's many other sort of dynamics I could talk about, but I wanted to just start there and lay out some uh landscape. >> Well, I think that that sort of leads back to something I wanted to swing back around to actually. I guess we'll start with this one. Um because we you we started off talking about like premium and things like that and how do you I want to sort of combine wrap this into two questions is how do you look at tiered pricing you know like the famous like you know bronze silver and gold approach uh which to me feels similar because there's always like the free demo and then bronze silver gold that that tend to be out there and then >> how how do you see for example these like these SAS tools that are out there. Um, how do you see that like adjusting pricing based on the for example like now we're going to have AI as part of you know certain tiers or things like that and it falls into the same to me it falls in the same categories of things like what do you how do you do you adjust your pricing based on um you know like the monetary flow and things like that. if you suddenly have you know contraction or expansion or you know things like that in in pricing models uh because AI is definitely going to be a part of that as I think it's it's lowering the cost of the technical tools in a sense or at least has the opportunity to do that. So how do you see that impacting pricing or how should that factor into the impact of pricing? >> Yeah. Um this is a great question. Um so a couple different things. So when you talk about you know the bronze, silver, gold, sometimes folks refer to that as, you know, good, better, best. Um the so that is one of the ways that we're seeing SAS companies monetize today and I think it makes a lot of sense in certain use cases. So uh the you know example would be uh so I'll use intercom because I think they've actually done really this really smartly. So, Intercom does a lot of things, but one of the things worlds they compete in is the world of customer service uh agent software. So, they compete with like the Zenesks of the world um for customer support systems. And so, they have a platform that has a good, better, best. And so one of the things is some of their AI capabilities like summarize the entire transaction history with this account and all their service tickets or the the last you know the history you know imagine a service agent gets bounced midway through a support experience right and then maybe there's a bunch of different notes summarize all this so that capability maybe that's in the better or best tier to help drive upgrade and maybe I leave my tier pricing alone at like a price point level. But say you know in that case customer support software much like CRM often priced per user because like how many customer support agents do you have using the platform uh often translates really nicely to the value you're providing and that value is that value driver is enhancing that agent's ability to be effective be higher performance answer tickets faster. The other reason I'm using intercom is because they also did something separate which is they created what they call their finai which is their automated sort of support deflection agent and for that they created a entirely separate pricing model because the value driver there is hey you don't need to get any agents involved at all this thing sits on your website your customers come and have a you know intercom's obvious thing that you know they they started this a bunch of other people copied it but they're sitting on the the bottom right corner of your uh website, your little chat window pops up. So, hey, if we can answer your customer's support questions before they ever come to your agent, we'll just charge you 99 cents per resolution. And there, you're not enhancing the value of the customer support agent. Instead, you have a different brand new value driver where the user is not even involved. And so, they separated that functionality out. I like the way Intercom has done that and that structure as well because I'll just maybe lay out some bad practices that I've seen folks creep into, which is, hey, we've got this bill for whatever $20,000 a month we're paying to OpenAI. They're charging us per token. So, we're going to add a per token usage through our platform writer to all of our pricing or we're going to add a per token usage limit to the problem with that is customers have no freaking clue what a token is and they don't want to know what a token is. Your sales people don't want to know what a token is. They definitely don't want to have to explain it on a sales call because it has nothing to do with your product. If you're selling a CRM and all of a sudden you're in the world explaining what AI tokens are, like you've already lost the battle. Like even if you have the best salesperson in the world and they have some amazing pitch, like you've still gone off the rails trying to explain to a customer, you've moved from talking about their problem, how many sales people have? I got 100. Great. It's 10 bucks a user. It's 1,000 bucks a month. Awesome. Sign me up. Now all of a sudden, now we're talking about infrastructure and your costs and customers don't give a about that. So it's a really bad idea. adds sand in the motion. There's sand in the gears of your go to market machine. So, you know what the Finn AI example I like is they were able to, you know, and so there's there's permutations, right? You you know, if you really believe it's driving value, maybe you increase the cost of those higher tiers in the in the good, better, best model that have the AI plans to help, you know, uh cover that. Um, but either way, you've left it as per user price on those plans and a hey 99 cent per resolution, right? We're not talking about how hard our AI is got to work or we're using Open AI under the hood and we got to pay them a bunch of money so we're going to charge you some approximate cause. It and companies should have learned this because they had to go through the same thing back in the days of like the Twilio with like per SMS because the if you ever looked at telecom pricing it's like every geography two geography is like this giant matrix. Um, and so, you know, companies have had to deal with even worse before. But, you know, net net is if you're going to try to cap some sort of usage metric, make it something that your customers are already tracking at best or at least is related to what they're going to be doing with your product in a way that's not tokens. >> Do you find God every time we have a every question we could expanded like six others? Um, let me say I but this is like that's the thing is pricing is can be very complicated. Can be very there's a there are a lot of factors. I mean it's amazing how often we'll have somebody that's a consultant type and they'll say well the answer will be well that depends and pricing it feels like is even more so. It's just there's just so many nuances and details that can that you can use and dials and such to to hit. Uh but I want to swing back to something that I guess is like getting back from the idea of like a to the idea of like a startup or product or something like that. Um I want to like the idea of we talked about like trials and trial periods and seven and 14 and 30 days and stuff like that. One of the things I see a lot uh and now I'm seeing even I always saw it in B2B more and now I'm seeing in B TOC and uh actually push it for my the businesses that I talk about is to take advantage of these is the idea of demos where instead of a a free trial is you really sit down you you as a company you have some resources dedicated to look we're going to walk you through this product particularly I think when you get into business products like even CRM and things like that it's like hey this is we need this gets past the support and some of those kinds. Let's let us show you how this can work for you. And what I want to I want to know like how much of that you have factored in with some of the pricing that you've you know discussions you have is that something that actually because a question I have is could that possibly allow you to offer ask for a higher pricing? Does it does it maybe convert better or allow you to to have a little more of a feel of like this is the you know this is the Porsche version versus the Kia version of of this product? >> Yeah. Well, I mean I'm not 100% sure I'm tracking your question, but I think you know for any talk about monetization, you always need to think about creating value, communicating value, and capturing value. So if you think about your demo, is is the demo actually effectively communicating value? Because if we can't communicate it, then you know only a consumer's perceived value of the product matters to their willingness to pay. So you may be able to write out a beautiful Excel model that shows how we create millions of dollars of ROI for you and your company. And if customer doesn't believe it, prospect doesn't believe it, like that's done no work for you, right? Maybe it's real. Maybe you're like, "Hey, this is the data. You know, we we have thousands of customers, but they don't believe it. If their perception doesn't change, then you haven't influenced, you know, the final number, which is their willingness to pay." So the question then is just have you architected uh demo effectively or is there an ability to do a free trial? You know, like I will I will say 99.9% of the time a free trial where I can actually put my data in and play around with it myself is going to increase my perceived value more so than a salesperson sitting on a call with me running me through a demo. Because I mean we all know how we are, right? I mean most of us can't even watch a full Netflix without checking our phones, let alone some demo of some business software. Our minds in 20 different places versus, oh, I'm hands-on. I'm interactive with this thing. So then the question is if we I want to tie this back though to the idea of these offer configurations or good better best structure. If we've done our jobs well we should be able to say gold silver bronze for each of those who is this for >> we have designed those tiers with a particular customer segment in mind. If we start with that end in mind, it makes this process you're talking about all the more effective. Why? Because we say look the customers in our minds is a hypothesis and we'll tweak and tune as we go along. But we believe this kind of customer has this type of context usually could cap encapsulate that in maybe three to five kind of discovery questions. Those are discovery questions we now enable our sales folks with. based upon their answers, we now have cool, my demo script is aligned to showing them this and at the end I have a tier that's perfectly meant for you with a price point. So, have we thought about that entire flow of the salesperson sitting on a call saying, "Okay, Mr. Customer, nice to meet you. Tell me a little bit about your business. What about this? Do you guys ever struggle with that?" Oh, that's interesting. You ever struggle with this? Cool. Boom, boom, boom, boom, boom. let me show you how our product solves all those problems through a demo that aligns to the features that are in the tier that you're believe that they're suited to sell and we make that more effective. So I just put that all under are we communicating value effectively. >> Oh that's a that goes back to a comment you made earlier about the because it really is it's like you're the some CEOs will be like well you're leaving money on the table just like anything else. It's like because you're saying no to as soon as you segment anybody, you're now saying no to everybody outside of that segment. And now the interesting question there is when you have those tiers and you say which makes perfect sense is you have now let's say you have three tiers. So you've got these three layer you've got three specific types of customers essentially three avatars that you're serving. Each product is perfectly suited to them. So when you talk to a CEO or a company or founder about that, do you get push back of the like, okay, we're going after the bronze person or, you know, this is what this looks like, do you get the push back of, but wait, we want to be able to upsell them as well as opposed to and and maybe does that does that muddy the waters or is that actually something that you like say, okay, we're going to target the the we'll call them the lower end or the less, you know, the less margin customer. Should we talk about upselling and and and trying to get them into that higher tier uh you know level or or offering? >> Yeah. Um I used to think that way. Um the I I've I've learned the hard way that you don't get out of a pricing exercise without having that conversation. So you have to frontload it. So we didn't talk about kind of my core model, but it starts with customer segmentation. That's the first step of a pricing exercise because if you don't do that, inevitably you're going to be at the executive review of the new pricing and and invariably this question will come up. Well, this is great, but what about X customer? This won't work for X customer. So, I've learned you want to have that conversation at the beginning. Like have everyone say, "What about X customer? What about Y customer? What about JP Morgan? Because blah blah blah blah blah blah blah blah, right? Get all that and then help them figure out who are their customer segments and get those defined and then build the pricing and packaging around that as a foundation because if you get to the end and you haven't done that in inevitably it's going to blow up with that qu that line of questioning. That actually is a perfect segue as we're sort of like hitting it like this thing could go like I said we could do a whole season I think just talking about pricing and all these different areas and the different approaches to it and what works and what doesn't. Um so I think right there because we we haven't even talked too much about your model and your approach. we got way off into other places, which is a perfect setup for people that now hopefully they have got a nice teaser of like this is somebody that maybe I should talk to. Maybe this Dan guy knows a couple of things and would be worth reaching out to. And in so doing, what is the best way for them to get a hold of you? >> Yeah. Uh I'm on LinkedIn, Dan Blowski. So folks can reach out to me there. Just let me know you heard me on the podcast so I could separate it from the rest of the random LinkedIn spam. Um or uh you know go to my website productquility.com um there's a way to contact me there. I also try to blog about this stuff uh as often as I I can uh manage try to demystify this uh you know I have got a lot of scar tissue uh so we'll uh you know happy to happy to share that love and I try to do that through my writing. I also have a podcast called SAS scaling secrets myself where I interview uh scale up B2B SAS CEOs about all the ways that to scale their companies. So folks could find that wherever podcasts are found. >> Awesome. because I think we've got more than a few people in the audience that have that seems to be like the that seems to be the one of the more popular ways to launch products these days. People look at it and realize like I don't want to I don't want to do a desktop install or I don't want to do a a website necessarily that's not going to have that that stickiness that SAS tends to. So definitely you guys can check that podcast out. There will be links in the show notes for sure for all of this. And that will wrap this one up. Uh, I want to thank you so much, Dan, for hanging out with us and having this conversation and allowing it to go all over the place as conversations sometimes do. But that's sort of the messy part, I think, of pricing and products and, uh, it gets back to like this goes back something we talk about so often is the why is it's like who's your customer, who are you serving, what is the problem you're solving, and does the solution also actually solve the problem in a way that people are like, "Yes, take my money." Uh, so you always want to find those people that are on the desert and you're selling them a bottle of water as opposed to the people that have just gotten out of, you know, just walked off a boat where they about drowned and now you're like, "Hey, would you like a little more water on top of that?" >> So, thank you so much for your time. I appreciate you hanging out with us, Dan. >> Thanks for having me. It's fun. >> All right. And for all the rest of you, uh, check us out in the show notes and the the links there for him. And if you leave any comments for us, we will pass those on. Or reach out to him directly. It'll be that much easier. Uh go out there and have yourselves a great day, a great week, and we will talk to you next time. Uh let's see. So, we do a a video as well and we have a bonus. So, uh I love for the the interviews. It's like what would be one somebody comes to you and says, "I've got a product. I need to figure out pricing." What would be like and I don't know where to begin. What would be like a first step that you say this is where you should begin with your your pricing journey? Um well uh I would say two things. Uh I actually have a uh a SAS CEO pricing scorecard on my website. So that's a good uh sort of a self assessment and then there's some prescriptive tips for uh helping through different scenarios because as we've talked about pricing can cover a lot of ground whether that's governance nobody owns pricing that's a problem or or discounting is all over map that's a problem right or you know more of the strategic pricing considerations that we discussed on on the show um you know I'd say areas of of highest leverage you know for folks just getting started is one thing I've learned is there's a difference between having a discounting policy and enforcing a discounting policy and you want to make sure you're doing both. Um because that's at the front end, right? If we think about the your developer audience will understand APIs, you know, that's the API for your pricing, right? So, we could have some beautiful strategic pricing that in the boardroom looked amazing on PowerPoint, uh but your sales folks just do whatever they want. The market's never going to know about that beautiful pricing. So, it's usually a really good first step for folks to say, do we have a price a discounting policy and are we actually enforcing and monitoring and tuning that over time? Um, so I think that's a really good tactical first place to stop start. Uh, because we go do a bunch of really cool strategic work in the boardroom and if we launch it, we're not going to see as much impact. Oh, that's a that's a cl I've got I've got nightmare horror stories in my past of companies where the the salespeople were able to pretty much just do whatever pricing wise and they ended up into all they had all kinds of issues with that as far as like some things were not even profitable. Uh and then trying to actually like when they tried to standardize it, it was a nightmare because everybody was like I've got a 10-year contract with this thing like oh that's not going to work. We're going have to find a way to you know reset that. And people aren't happy when they've already like budgeted that out. All right. Well, we'll let you get back to your day. Thanks for hanging out. Thanks for the bonus. Uh actually, I guess two little bonus points there. And we will uh we'll get this out. This will be coming out. I think we're like at late January now, somewhere around there. >> Think we're in February now. >> Early February. Uh we'll do it'll be a two-parter. So, it'll be a Tuesday and a Thursday. And as we get closer to those links and have those available, we will send them out and allow you to share those out. >> Just out of out of out of curiosity, why why do you do two-parters? I don't care. I just like I'm as a podcaster myself, I'm wondering like how you guys landed on that. >> It really came from um it came from it being a like this we're like at almost a thousand episodes and even early on uh it was always about a 20 20 to 25 minute occasionally a 30 minute podcast and it didn't have There were no interviews for the longest time and once we started having guests uh the conversations were just too good. The conversations just we couldn't get stuff in in 20 minutes and found and so finally I was like all right instead of just having like all sorts of you know going from 20 minutes to an hour and then maybe back to 20 minutes or anything like that we say you know what we'll keep it closer to like a you know a time box of some sort and then we'll just split them into you know multiple episodes. And so that's turned out to be not a bad way to do it too because then it allows people to just sort of like uh really to just digest some of stuff because we tend to have like this you've got a conversation where there's a lot of good notes in there and so I found it's pretty nice to have like they can take you know that first half of it think about a little bit they come back the next episode and now get hit with you know either sometimes it's a little bit of a variance in in what we talk about or it's like now we get into the more complicated applications of whatever we talked about in in the first episode. So, it's it's really has more to do with just sort of like time boxing stuff and keeping more of a consistency in length as opposed to to anything else. >> Oh, well no, it's uh that's reasonable. I'm an outlier. I listen to like two three hour podcasts. So, uh I uh I do that like I'll do the Dan Carlin podcast every six years or whenever it comes out. But to me, it's like there's a certain point but because it's an audio book now. Um, but then I there are a few like I'll listen to and I'll be like I'll it's good it's better for long trips. What with ours with the developer thing it feels like you know if you're not in the car all day or something like that it's easier to just hit this in a snippet like during lunch or if you've got like a you know average 30 to 45 minute commute home or something like that then you can sort of fit it in a bite-sized chunk as opposed to having to do it over you know a couple of listens. >> Cool. Well, hey appreciate the opportunity. anything I can do for you? >> Uh, not right now, but definitely I will reach out to you uh on LinkedIn if I have not already. I don't think I haven't. We'll we'll connect and um yeah, we'll we'll get you that stuff and just let us know if there's any questions you have or you anything like that that we can help out anywhere we can go. Even if you want to chat about podcasting approaches and stuff like that, we're we're happy to do that as well. >> Yeah. Yeah. Well, you guys thousand episodes, you got a lead on me for sure. I think I'm I'm happy I'm about to crack 75. So, uh yeah, >> it goes quick. It's amazing how suddenly I was like, "Wow, it's 100. Wow, it's 500. Wow, it's almost a thou." You know, it's just like it does like you get into the rhythm and next thing you know you're like, "Wow, I have cranked out a lot of episodes." >> Wow. Wow. Well, it's impressive. Well, hey, I appreciate the time. Um, thank you so much. >> Sounds good. Have a good one. Take care. >> Take care. Bye. >> Take care. Thank you.
Transcript Segments
Well, hello and welcome back. We are
here continuing our season of building
better foundations. We are building
better developers, the developer
podcast. I happen to be Rob Broadhead, a
founder of developer better building
better developers, also the founder of
RB Consulting, where we help you assess
your technology and build a roadmap to
success. Good things and bad things.
I have been good things. I have been
talking about like technology and cool
tools and stuff like that recently and
have found that there are like I said
there's just a lot of neat things I've
been able to do that allow me to really
like embrace digital nomad and all of
those kinds of things having a you know
a virtual office uh being able to have
conversations with people being able to
keep in touch and it's it's really been
awesome. This is a a really good thing.
Uh I really enjoy it. So this is in the
plus column. Um the negative column is
doing so now I have more of a feel like
I'm in a studio when I do these things.
So I have like bright lights on me and
things like that that drive me a little
bit nuts or maybe nutser a little bit
more beyond where I normally my sanity
level normally lies much like my co-host
who drives me crazy on a regular basis
for a wide range of reasons. But go
ahead and introduce yourself. Hey
everyone, my name is Michael Malash. I'm
one of the co-founders of developer
building better developers. I'm also the
founder of Envision QA where we build
and test custom software that helps
businesses run smoother and grow faster.
Uh good thing bad thing uh good thing uh
said technology. Uh I like playing with
gadgets and that and uh I I love playing
with those little studio things and
video uh equipment. Uh bad thing is the
audio editing tools are a pain in the
butt. It's like one tool works great for
one thing, another tool works great for
another, but unless you pay a lot of
money, you can't really do it all in
one. So, it sometimes these edits get a
little complicated.
I will say that of the tools that we've
played around with over the years,
although I did it manually for a long
time, uh Adobe's tools were are
topnotch. Uh although my son who does a
lot of this would actually argue some of
those, there are some better tools out
there now. Uh I found actually descript
has been a is a really good tool to take
a look at and it does do uh it has
progressed very well and very quickly.
So uh but this is an area where there's
a lot of change because of AI and stuff
like that. So I would say check your new
tools on a regular basis because there
are cool stuff out there and maybe a
better price point. All of that being
said, let us now return to our
conversation with Dan Boowski and we're
going to talk more about pricing. And
yeah, we're going to range far and wide,
but pencils up because I think you're
going to want to take notes. There's
some really good uh areas, even areas
that we don't dig into necessarily to go
too deep. Uh but we will have links in
the show notes and all that kind of good
stuff for you to check in with Dan at
another time and see if maybe you can
have a conversation with him to go
deeper in those areas. Here we go back
where we left off in our conversation
with Dan.
>> I love that. Um, so I have one more
question. I'll pass it back to Rob. So
where do you see in this modern age of
AI SAS pricing going over the next few
years?
>> Oh, big big question.
>> There's so many different areas to touch
on here, so I'll try to boil it down to
a couple.
I think one thing that we're seeing
right now is an incredible amount of
dynamism in the software pricing space
that maybe we've not seen for a very
long time. I think probably the last
thing it was comparable to was the
transition from perpetual to SAS models
maybe about 15 years ago at this point.
So, one of the things that's happening
is that you've seen competitive dynamics
unlike anything you're ever seeing at
the sort of foundational model layer.
And I think there's there's kind of two
there's multiple battlefronts here,
which is one of the reasons why it's so
complicated. If we just focus, for
example, on say the foundational AI
model companies,
you see every week they're oneuping each
other with a, you know, Anthropic just
did this, you know, a week or two ago
when they launched Opus 45. it's now the
best model and they dropped the price
right what was you know so you just by
that alone you could see sort of the
dynamics uh that are that are happening
um and so we're seeing constant you know
iteration and update as folks try to uh
figure that part out I would say on the
other side you know where we might talk
about AI enabled uh software platforms
so you know every board of directors has
asked their CEO since the launch of chat
GBT in late 2022 do what are we doing
with about AI and we've seen a lot of
interesting experiments. I don't know
that anything has you know fully uh you
know been a home run yet but um so
everyone is baking AI enabled
capabilities into their products and so
what we're seeing there is a very real
tension between
how do we monetize this thing? Is it
ready to monetize? And how do we manage
margin? Because software has got to
exist in a very
privileged position of world industries
where, you know, if I sell you hammers,
I have to care how much it costs me to
land that hammer manufactured to put it
into Home Depot. Like, I can't just be
like, I'll I'll I'll charge you a $150
per hammer and like I'll figure it out
on the back end. Like, no, you're not
going to be in business very long. But
software companies forever have been
able to do that.
There's been some exception but you know
the marginal cost to serve because
network storage compute has been almost
infinite testably small per you know
incremental user basis that they've been
able to ignore such things and so now
there's a real trade-off that those
companies are facing. Okay, we're now
seeing a you know the CFO is seeing a
giant check every month going out the
door to OpenAI or Anthropic or to
Google.
How are we what are we doing about this?
And so we're seeing a lot of comp what
what I think fundamentally is changing
is that companies are having to look at
their pricing a lot sooner in their life
cycle to account for this. Uh and
there's many other sort of dynamics I
could talk about, but I wanted to just
start there and lay out some uh
landscape.
>> Well, I think that that sort of leads
back to something I wanted to swing back
around to actually. I guess we'll start
with this one. Um
because we you we started off talking
about like premium and things like that
and how do you I want to sort of combine
wrap this into two questions is how do
you look at tiered pricing you know like
the famous like you know bronze silver
and gold approach uh which to me feels
similar because there's always like the
free demo and then bronze silver gold
that that tend to be out there and then
>> how how do you see for example these
like these SAS tools that are out there.
Um, how do you see that like adjusting
pricing based on the for example like
now we're going to have AI as part of
you know certain tiers or things like
that and it falls into the same to me it
falls in the same categories of things
like what do you how do you do you
adjust your pricing based on um you know
like the monetary flow and things like
that. if you suddenly have you know
contraction or expansion or you know
things like that in in pricing models uh
because AI is definitely going to be a
part of that as I think it's it's
lowering the cost of the technical tools
in a sense or at least has the
opportunity to do that. So how do you
see that impacting pricing or how should
that factor into the impact of pricing?
>> Yeah. Um this is a great question. Um so
a couple different things. So when you
talk about you know the bronze, silver,
gold, sometimes folks refer to that as,
you know, good, better, best. Um the so
that is one of the ways that we're
seeing SAS companies monetize today and
I think it makes a lot of sense in
certain use cases. So uh the you know
example would be uh so I'll use intercom
because I think they've actually done
really this really smartly. So, Intercom
does a lot of things, but one of the
things worlds they compete in is the
world of customer service uh agent
software. So, they compete with like the
Zenesks of the world um for customer
support systems. And so, they have a
platform that has a good, better, best.
And so one of the things is some of
their AI capabilities like summarize the
entire transaction history with this
account and all their service tickets or
the the last you know the history you
know imagine a service agent gets
bounced midway through a support
experience right and then maybe there's
a bunch of different notes summarize all
this so that capability maybe that's in
the better or best tier to help drive
upgrade and maybe I leave my tier
pricing alone at like a price point
level. But say you know in that case
customer support software much like CRM
often priced per user because like how
many customer support agents do you have
using the platform uh often translates
really nicely to the value you're
providing and that value is
that value driver is enhancing that
agent's ability to be effective be
higher performance answer tickets
faster.
The other reason I'm using intercom is
because they also did something separate
which is they created what they call
their finai which is their automated
sort of support deflection agent and for
that they created a entirely separate
pricing model because
the value driver there is hey you don't
need to get any agents involved at all
this thing sits on your website your
customers come and have a you know
intercom's obvious thing that you know
they they started this a bunch of other
people copied it but they're sitting on
the the bottom right corner of your uh
website, your little chat window pops
up. So, hey, if we can answer your
customer's support questions before they
ever come to your agent, we'll just
charge you 99 cents per resolution.
And there, you're not enhancing the
value of the customer support agent.
Instead, you have a different brand new
value driver where the user is not even
involved. And so, they separated that
functionality out.
I like the way Intercom has done that
and that structure as well because I'll
just maybe lay out some bad practices
that I've seen folks creep into, which
is, hey, we've got this bill for
whatever $20,000 a month we're paying to
OpenAI.
They're charging us per token. So, we're
going to add a
per token usage through our platform
writer to all of our pricing or we're
going to add a per token usage limit to
the problem with that is customers have
no freaking clue what a token is and
they don't want to know what a token is.
Your sales people don't want to know
what a token is. They definitely don't
want to have to explain it on a sales
call because it has nothing to do with
your product. If you're selling a CRM
and all of a sudden you're in the world
explaining what AI tokens are, like
you've already lost the battle. Like
even if you have the best salesperson in
the world and they have some amazing
pitch, like you've still gone off the
rails trying to explain to a customer,
you've moved from talking about their
problem, how many sales people have? I
got 100. Great. It's 10 bucks a user.
It's 1,000 bucks a month. Awesome. Sign
me up. Now all of a sudden, now we're
talking about infrastructure and your
costs and customers don't give a
about that. So it's a really bad idea.
adds sand in the motion. There's sand in
the gears of your go to market machine.
So, you know what the Finn AI example I
like is they were able to, you know, and
so there's there's permutations, right?
You you know, if you really believe it's
driving value, maybe you increase the
cost of those higher tiers in the in the
good, better, best model that have the
AI plans to help, you know, uh cover
that. Um, but either way, you've left it
as per user price on those plans and a
hey 99 cent per resolution, right? We're
not talking about how hard our AI is got
to work or we're using Open AI under the
hood and we got to pay them a bunch of
money so we're going to charge you some
approximate cause. It and companies
should have learned this because they
had to go through the same thing back in
the days of like the Twilio with like
per SMS because the if you ever looked
at telecom pricing it's like
every geography two geography is like
this giant matrix. Um, and so, you know,
companies have had to deal with even
worse before. But, you know, net net is
if you're going to try to cap some sort
of usage metric, make it something that
your customers are already tracking at
best or at least is related to what
they're going to be doing with your
product in a way that's not tokens.
>> Do you find God every time we have a
every question we could expanded like
six others? Um, let me say I but this is
like that's the thing is pricing is can
be very complicated. Can be very there's
a there are a lot of factors. I mean
it's amazing how often we'll have
somebody that's a consultant type and
they'll say well the answer will be well
that depends and pricing it feels like
is even more so. It's just there's just
so many nuances and details that can
that you can use and dials and such to
to hit. Uh but I want to swing back to
something that I guess is like getting
back from the idea of like a to the idea
of like a startup or product or
something like that. Um I want to like
the idea of we talked about like trials
and trial periods and seven and 14 and
30 days and stuff like that. One of the
things I see a lot uh and now I'm seeing
even I always saw it in B2B more and now
I'm seeing in B TOC and uh actually push
it for my the businesses that I talk
about is to take advantage of these is
the idea of demos where instead of a a
free trial is you really sit down you
you as a company you have some resources
dedicated to look we're going to walk
you through this product particularly I
think when you get into business
products like even CRM and things like
that it's like hey this is we need
this gets past the support and some of
those kinds. Let's let us show you how
this can work for you. And what I want
to I want to know like how much of that
you have factored in with some of the
pricing that you've you know discussions
you have is that something that actually
because a question I have is could that
possibly allow you to offer ask for a
higher pricing? Does it does it maybe
convert better or allow you to to have a
little more of a feel of like this is
the you know this is the Porsche version
versus the Kia version of of this
product?
>> Yeah. Well, I mean I'm not 100% sure I'm
tracking your question, but I think you
know for any
talk about monetization, you always need
to think about creating value,
communicating value, and capturing
value. So if you think about your demo,
is is the demo actually effectively
communicating value? Because if we can't
communicate it, then you know only a
consumer's
perceived value of the product matters
to their willingness to pay. So you may
be able to write out a beautiful Excel
model that shows how we create millions
of dollars of ROI for you and your
company. And
if customer doesn't believe it, prospect
doesn't believe it, like that's done no
work for you, right? Maybe it's real.
Maybe you're like, "Hey, this is the
data. You know, we we have thousands of
customers, but they don't believe it. If
their perception doesn't change, then
you haven't influenced, you know, the
final number, which is their willingness
to pay." So the question then is just
have you architected
uh demo effectively or is there an
ability to do a free trial? You know,
like I will I will say 99.9% of the time
a free trial where I can actually put my
data in and play around with it myself
is going to increase my perceived value
more so than a salesperson sitting on a
call with me running me through a demo.
Because I mean we all know how we are,
right? I mean most of us can't even
watch a full Netflix without checking
our phones, let alone some demo of some
business software. Our minds in 20
different places versus, oh, I'm
hands-on. I'm interactive with this
thing. So then the question is if we I
want to tie this back though to the idea
of these offer configurations or good
better best structure. If we've done our
jobs well we should be able to say gold
silver bronze for each of those who is
this for
>> we have designed those tiers with a
particular customer segment in mind. If
we start with that end in mind, it makes
this process you're talking about all
the more effective. Why? Because we say
look the customers in our minds is a
hypothesis and we'll tweak and tune as
we go along. But we believe this kind of
customer has this type of context
usually could cap encapsulate that in
maybe three to five kind of discovery
questions.
Those are discovery questions we now
enable our sales folks with. based upon
their answers, we now have cool, my demo
script is aligned to showing them this
and at the end I have a tier that's
perfectly meant for you with a price
point. So, have we thought about that
entire flow of the salesperson sitting
on a call saying, "Okay, Mr. Customer,
nice to meet you. Tell me a little bit
about your business. What about this? Do
you guys ever struggle with that?" Oh,
that's interesting. You ever struggle
with this? Cool. Boom, boom, boom, boom,
boom. let me show you how our product
solves all those problems through a demo
that aligns to the features that are in
the tier that you're believe that
they're suited to sell and we make that
more effective. So I just put that all
under are we communicating value
effectively.
>> Oh that's a that goes back to a comment
you made earlier about the because it
really is it's like you're the some CEOs
will be like well you're leaving money
on the table just like anything else.
It's like because you're saying no to as
soon as you segment anybody, you're now
saying no to everybody outside of that
segment. And now the interesting
question there is when you have those
tiers and you say which makes perfect
sense is you have now let's say you have
three tiers. So you've got these three
layer you've got three specific types of
customers essentially three avatars that
you're serving. Each product is
perfectly suited to them. So when you
talk to a CEO or a company or founder
about that, do you get push back of the
like, okay, we're going after the bronze
person or, you know, this is what this
looks like, do you get the push back of,
but wait, we want to be able to upsell
them as well as opposed to and and maybe
does that does that muddy the waters or
is that actually something that you like
say, okay, we're going to target the the
we'll call them the lower end or the
less, you know, the less margin
customer. Should we talk about upselling
and and and trying to get them into that
higher tier uh you know level or or
offering?
>> Yeah. Um
I used to think that way. Um the I I've
I've learned the hard way that you don't
get out of a pricing exercise without
having that conversation. So you have to
frontload it. So we didn't talk about
kind of my core model, but it starts
with customer segmentation. That's the
first step of a pricing exercise because
if you don't do that, inevitably you're
going to be at the executive review of
the new pricing and and invariably this
question will come up. Well, this is
great, but what about X customer? This
won't work for X customer. So, I've
learned you want to have that
conversation at the beginning. Like have
everyone say, "What about X customer?
What about Y customer? What about JP
Morgan? Because blah blah blah blah blah
blah blah blah, right? Get all that and
then help them figure out who are their
customer segments and get those defined
and then build the pricing and packaging
around that as a foundation because if
you get to the end and you haven't done
that in inevitably it's going to blow up
with that qu that line of questioning.
That actually is a perfect segue as
we're sort of like hitting it like this
thing could go like I said we could do a
whole season I think just talking about
pricing and all these different areas
and the different approaches to it and
what works and what doesn't. Um so I
think right there because we we haven't
even talked too much about your model
and your approach. we got way off into
other places, which is a perfect setup
for people that now hopefully they have
got a nice teaser of like this is
somebody that maybe I should talk to.
Maybe this Dan guy knows a couple of
things and would be worth reaching out
to. And in so doing, what is the best
way for them to get a hold of you?
>> Yeah. Uh I'm on LinkedIn, Dan Blowski.
So folks can reach out to me there. Just
let me know you heard me on the podcast
so I could separate it from the rest of
the random LinkedIn spam. Um or uh you
know go to my website productquility.com
um there's a way to contact me there. I
also try to blog about this stuff uh as
often as I I can uh manage try to
demystify this uh you know I have got a
lot of scar tissue uh so we'll uh you
know happy to happy to share that love
and I try to do that through my writing.
I also have a podcast called SAS scaling
secrets myself where I interview uh
scale up B2B SAS CEOs about all the ways
that to scale their companies. So folks
could find that wherever podcasts are
found.
>> Awesome. because I think we've got more
than a few people in the audience that
have that seems to be like the that
seems to be the
one of the more popular ways to launch
products these days. People look at it
and realize like I don't want to I don't
want to do a desktop install or I don't
want to do a a website necessarily
that's not going to have that that
stickiness that SAS tends to. So
definitely you guys can check that
podcast out. There will be links in the
show notes for sure for all of this. And
that will wrap this one up. Uh, I want
to thank you so much, Dan, for hanging
out with us and having this conversation
and allowing it to go all over the place
as conversations sometimes do. But
that's sort of the messy part, I think,
of pricing and products and, uh, it gets
back to like this goes back something we
talk about so often is the why is it's
like who's your customer, who are you
serving, what is the problem you're
solving, and does the solution also
actually solve the problem in a way that
people are like, "Yes, take my money."
Uh, so you always want to find those
people that are on the desert and you're
selling them a bottle of water as
opposed to the people that have just
gotten out of, you know, just walked off
a boat where they about drowned and now
you're like, "Hey, would you like a
little more water on top of that?"
>> So, thank you so much for your time. I
appreciate you hanging out with us, Dan.
>> Thanks for having me. It's fun.
>> All right. And for all the rest of you,
uh, check us out in the show notes and
the the links there for him. And if you
leave any comments for us, we will pass
those on. Or reach out to him directly.
It'll be that much easier. Uh go out
there and have yourselves a great day, a
great week, and we will talk to you next
time.
Uh let's see. So, we do a a video as
well and we have a bonus. So, uh I love
for the the interviews. It's like what
would be one somebody comes to you and
says, "I've got a product. I need to
figure out pricing." What would be like
and I don't know where to begin. What
would be like a first step that you say
this is where you should begin with your
your pricing journey?
Um
well uh I would say two things. Uh I
actually have a uh a SAS CEO pricing
scorecard on my website. So that's a
good uh sort of a self assessment and
then there's some prescriptive tips for
uh helping through different scenarios
because as we've talked about pricing
can cover a lot of ground whether that's
governance nobody owns pricing that's a
problem or or discounting is all over
map that's a problem right or you know
more of the strategic pricing
considerations that we discussed on on
the show um you know I'd say areas of of
highest leverage you know for folks just
getting started is one thing I've
learned is there's a difference between
having a discounting policy and
enforcing a discounting policy and you
want to make sure you're doing both. Um
because that's at the front end, right?
If we think about the your developer
audience will understand APIs, you know,
that's the API for your pricing, right?
So, we could have some beautiful
strategic pricing that in the boardroom
looked amazing on PowerPoint, uh but
your sales folks just do whatever they
want. The market's never going to know
about that beautiful pricing. So, it's
usually a really good first step for
folks to say, do we have a price a
discounting policy and are we actually
enforcing and monitoring and tuning that
over time? Um, so I think that's a
really good tactical first place to stop
start. Uh, because we go do a bunch of
really cool strategic work in the
boardroom and if we launch it, we're not
going to see as much impact. Oh, that's
a that's a cl I've got I've got
nightmare horror stories in my past of
companies where the the salespeople were
able to pretty much just do whatever
pricing wise and they ended up into all
they had all kinds of issues with that
as far as like some things were not even
profitable. Uh and then trying to
actually like when they tried to
standardize it, it was a nightmare
because everybody was like I've got a
10-year contract with this thing like oh
that's not going to work. We're going
have to find a way to you know reset
that. And people aren't happy when
they've already like budgeted that out.
All right. Well, we'll let you get back
to your day. Thanks for hanging out.
Thanks for the bonus. Uh actually, I
guess two little bonus points there. And
we will uh we'll get this out. This will
be coming out. I think we're like at
late January now, somewhere around
there.
>> Think we're in February now.
>> Early February. Uh we'll do it'll be a
two-parter. So, it'll be a Tuesday and a
Thursday. And as we get closer to those
links and have those available, we will
send them out and allow you to share
those out.
>> Just out of out of out of curiosity, why
why do you do two-parters? I don't care.
I just like I'm as a podcaster myself,
I'm wondering like how you guys landed
on that.
>> It really came from um it came from it
being a like this we're like at almost a
thousand episodes and even early on uh
it was always about a 20 20 to 25 minute
occasionally a 30 minute podcast and it
didn't have There were no interviews for
the longest time and once we started
having guests uh the conversations were
just too good. The conversations just we
couldn't get stuff in in 20 minutes and
found and so finally I was like all
right instead of just having like all
sorts of you know going from 20 minutes
to an hour and then maybe back to 20
minutes or anything like that we say you
know what we'll keep it closer to like a
you know a time box of some sort and
then we'll just split them into you know
multiple episodes. And so that's turned
out to be not a bad way to do it too
because then it allows people to just
sort of like uh really to just digest
some of stuff because we tend to have
like this you've got a conversation
where there's a lot of good notes in
there and so I found it's pretty nice to
have like they can take you know that
first half of it think about a little
bit they come back the next episode and
now get hit with you know either
sometimes it's a little bit of a
variance in in what we talk about or
it's like now we get into the more
complicated applications of whatever we
talked about in in the first episode.
So, it's it's really has more to do with
just sort of like time boxing stuff and
keeping more of a consistency in length
as opposed to to anything else.
>> Oh, well no, it's uh that's reasonable.
I'm an outlier. I listen to like two
three hour podcasts. So, uh I uh I do
that like I'll do the Dan Carlin podcast
every six years or whenever it comes
out. But to me, it's like there's a
certain point but because it's an audio
book now. Um, but then I there are a few
like I'll listen to and I'll be like
I'll it's good it's better for long
trips. What with ours with the developer
thing it feels like you know if you're
not in the car all day or something like
that it's easier to just hit this in a
snippet like during lunch or if you've
got like a you know average 30 to 45
minute commute home or something like
that then you can sort of fit it in a
bite-sized chunk as opposed to having to
do it over you know a couple of listens.
>> Cool. Well, hey appreciate the
opportunity. anything I can do for you?
>> Uh, not right now, but definitely I will
reach out to you uh on LinkedIn if I
have not already. I don't think I
haven't. We'll we'll connect and um
yeah, we'll we'll get you that stuff and
just let us know if there's any
questions you have or you anything like
that that we can help out anywhere we
can go. Even if you want to chat about
podcasting approaches and stuff like
that, we're we're happy to do that as
well.
>> Yeah. Yeah. Well, you guys thousand
episodes, you got a lead on me for sure.
I think I'm I'm happy I'm about to crack
75. So, uh yeah,
>> it goes quick. It's amazing how suddenly
I was like, "Wow, it's 100. Wow, it's
500. Wow, it's almost a thou." You know,
it's just like it does like you get into
the rhythm and next thing you know
you're like, "Wow, I have cranked out a
lot of episodes."
>> Wow. Wow. Well, it's impressive. Well,
hey, I appreciate the time. Um, thank
you so much.
>> Sounds good. Have a good one. Take care.
>> Take care. Bye.
>> Take care. Thank you.