CustomersRequests per customerInput tokens per requestOutput tokens per requestInput price per millionOutput price per millionAPI calls per requestPrice per API callCompute seconds per requestPrice per compute secondCustomer requestsOutput tokensInput tokensAPI callsCompute secondsOutput token costInput token costAPI call costCompute costToken costInference costCost per requestCost per customerThe AI suite of product features is making SaaS Gross Margin look much closer to Service-based business models. Software used to benefit from a nearly negligible cost of fulfillment. Now it must account for multiple COGS levers that scale with usage. In order to keep your offering priced sustainably, inference costs need enough room to flex with the introduction of new models & use cases. To do this, calculate your expected customer volume first. Translate the volume to their token usage and relative cost of the model used. Finally, include any pricing for API calls or compute time. Stress test where your pricing breaks relative to user behavior or model consumption.
Knowing your product margins should be your first priority to understand your business. This allows you to be intentional about pricing. Businesses have failed because they didn't charge enough to cover the cost of fulfillment. However, some have thrived by purposely making this decision. As long as the volume of this "loss leader" product can be covered by the volume of other profitable products/services. Understand where that coverage tipping point is among your product offerings, and adjust if you ever find yourself on the wrong side.
Sales solve all problems. As long as your Unit Economics are aligned. Some business models have more complexity when calculating the Contribution Margin of each incremental sale. This model shows the fundamentals behind this critical calculation. Beware. Price your product or service too low, and no amount of customers will fix your business.
In the range of pricing models, tiered pricing sits closer to being aligned with the customer than flat pricing. This is because the customer gets to benefit from economics of scale. The more they use the product, the cheaper their cost-per-usage. Tiered usage pricing is a common pricing model in software. In many cases, the Tier 1 Price is FREE, with higher tiers combining a fixed monthly fee alongside the additional usage pricing. If you decide to implement tiered usage pricing in your business, anchor the tier limits to median customer usage and the tier prices to your target gross margins.
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