January 2, 2025
AI is exposing a critical fl
aw in the business models of many B2B software providers: the challenges of "per-seat" pricing models in capturing the value provided by your solution.
The root cause of the challenge is that AI-powered solutions enable individual users to “do more with less”. Instead of needing x people to perform a task, an AI-powered solution might only need x/2.
While your solution's value may increase, its perceived worth – and actual revenue – in a per-seat structure could plummet.
The integration of AI isn’t just changing workflows—it’s forcing business leaders to rethink pricing structures. Providers need to rethink pricing structures because:
- Revenue from per-seat models will collapse as customers optimize usage without sacrificing productivity.
- Sales teams will face mounting pressure from unpredictable license renewals (‘How many users will be renewing?’)
- Revenue and cashflow predictability diminish as the future trend will be the further elimination of user-seats.
- While more value is provided, the provider is unable to capture that value through greater revenue and profits.
Providers can expect their customers to help them solve this problem as most customers will enjoy their ability to ‘pay less for more’.
Pricing metrics must be rooted in the Value Exchange model. Effective pricing metrics create:
- Stronger alignment with customer goals
- Reductions in cost-to-serve.
- Improved predictability for spend and budgeting for customers and cash flow predictability for providers.
- Accelerated adoption and community growth.
Act fast to adapt to this AI-powered reality.
- Reassess your pricing metrics: Are they vulnerable to shrinking seat counts? More generally, is your pricing metric structured so that as you provide more value your customer either pays more for that value or remains a customer at a lower cost while you’re increasing unit-profit economics?
- As needed, consider alternative pricing metrics. A straightforward place to begin: fit your current and proposed pricing metrics into the Seven Value Exchange models in the Proft Streams™ Framework. Hint: Consider performance and transactional Value Exchange Models.
- Armed with improved pricing metrics, update your sales tools and positioning to reflect the outcomes your solution creates.
While AI creates extraordinary opportunity to create greater value for customers, antiquated pricing metrics serve as anchors that prevent smooth sailing into greater revenue waters. Business leaders can cut these anchors by creating price metrics that are aligned with the value being created by their solutions.
Don’t wait for disruption to hit your solution. The time to adapt is now.
Applied Frameworks
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