Mastering AI Pricing — Mayank Pant, Stripe

Hello.

Hello, hi—uh, I'm Mayank. I'm from Stripe, and I'm the billing solution architect working in Stripe. And today we want to talk about AI pricing. So we've got a billing engine, and a lot of—nowadays a lot of AI companies come to us, talk about how they want to do billing, how we can help them with their AI pricing.

So, based on the research that our Stripe team has done over the last 2 years, and based on our experience, we want to share some of the learnings with you guys. So, as we all know, AI economy is growing at a record pace.

They're growing 3x faster than traditional SaaS. And based on Stripe data, this is what we see,right? The top 100 AI companies took 20 months to get to 20 million ARR, versus the top 100 SaaS companies which took 65 months.

So basically we are growing at a 3x faster rate than what we've seen before. And though this is great, this is exciting, but this is bringing new challenges. The speed of movement is so great that the companies are now going global faster, they're scaling up faster, and pricing—that pricing AI is becoming incredibly challenging because of the speed that we see.

So we know that earlier it was traditional SaaS pricing, basically we had 80-85% gross margins, they were not changing,right? But with AI it's completely a different thing,right? The margins are low, and the margins get impacted based on how many users are using your system.

So neither pure subscription nor pure user-based model offer us a complete answer,right? And the simple reason is we have margin risk from power users. 5% to 10% of your users can use 80% of your compute. External costs are unpredictable, that is your infrastructure pricing,right, which can really hurt your margins.

Technical pricing may overwhelm users. What we mean by that is, for a product company talking in terms of tokens, API calls might seem very normal. But people on the other side do not understand that technical pricing. For me, for example, if I go into Gamma, I don't really mind how many API calls am I using.

I want to see how many slides, or how many decks did I—was I able to get out of the price that I'm paying,right? And pricing is not able to keep up with the product velocity. What might be a premium feature today, in 6 months may be a standard feature across.

So are you able to keep up with that pricing? So what we see is 33% of our AI-powered business cite unpredictable compute costs as they're concerned. 41% say that defining the value that is being delivered is a concern,right?

And 84% of them talk about that we are rolling out products faster, but our pricing is not keeping up with it. So that is why what we say is iteration is a competitive advantage. The first price that you put in is a hypothesis.

It is not a commitment. Because you are bringing in new features every week, every month, and with those new features, and maybe the old premium features are becoming standard. So the pricing has to evolve with the feature that you put in,right?

So frequent pricing change is a signal of growth,right? You build the infrastructure, you put your pricing in the infrastructure that can iter—that allows you to iterate rapidly,right? So this chart is one of my favorite. It shows that hyper-growth companies, which are giving 100% plus year-on-year growth, they are changing their pricing 3+ times in the last 2 years.

They are not standing with their pricing. 49% is, you know, high growth. They've changed 3+. And the low-growth companies are only 22% who have changed it. And that means that those low-growth companies have a static product,right? And that is not where you want to be in today's age.

So now, where are these companies moving,right? If you look at it, hybrid pricing, which was only 6% in 2024, is 41%. Outcome-based pricing is 5%,right? And where has it picked up from? Seed-based pricing, SaaS pricing, subscription pricing is all declining because the models are changing.

So as I said, hybrid pricing 7x increased, and now 56% of AI company leaders are using hybrid pricing. Like we talk to all the—all the companies such as Intercom, Lovable, ElevenLabs, OpenAI, Anthropic, they are all building on Stripe, billing on Stripe, and all of them are using hybrid pricing.

And I've also talked with companies who were SaaS companies so far, which used to help customers build workflows, and they were in SaaS pricing. But now, as soon as they bring LLM AI into their product, then they are also planning to move on to hybrid pricing because SaaS pricing then starts eroding their margins,right?

So if this is where we are going, then how do we start thinking about pricing? How do we come to aright price? How do we define our price? And how then do we iterate it? So we've got a 5-step framework for this, and the step 1 of that framework is you define your value,right?

So what type of value can my product provide? But not what your product is doing, but what the customer perceives your product to do. Like again, like I took an example of Gamma. For me as a customer, I need that product to give me my presentation, my decks.

I don't care underneath how many API calls is it making, where is it going.

For the customer, it is the quality of the deck and the relevancy of that deck. So 53% of hyper-growth companies have offered clear value-based pricing that the customer understands, versus just 26% of low-growth peers. And the way we look at it is, there are 4 broad frameworks on which the first kind of these companies are the companies that are providing automation.

Like as a company, I'm helping them to save time. And as a customer, what they are looking at is, okay, with the time saved, I'm saving on the cost,right? Second is augmentation. The number of people remain the same, but the quality that they come out with is much better.

Like they can produce images better. Probably for a campaign provider, they can build in better campaigns more quicker. So those kind of augmentation, the company looks at it is, okay, I have the same number of people, but they are more efficient, they can deliver more value,right?

Third is the enhanced service. Maybe it gives you access to a proprietary software or some new dataset that you wouldn't have access otherwise,right? For example, if you look at Stripe and our payment infrastructure, we can do fraud recognition much better because of the volume that flows through us,right?

And finally, the fourth kind of one is which gives you improved results. Like for example, a company like Intercom who says, I will price you based on the number of tickets that I solve without human need. So that is impacting the direct bottom line.

So once we realize how we are helping the customers, how our customers perceive it, that is when we know the value and we know the price that we can command in the market. Once we've understood this is the value that we are providing, then you define your charge metric.

Like what is the billable unit that is best representing my value,right? And then you build features into a currency that customers understand. For example, is it consumption-based? Like for an infrastructure company, consumption-based might be theright one. Like how many API calls did I help you to make,right?

And this aligns to the cost of the company that is providing that service. Second could be the workflow-based. Like how many images was I able to generate? How many documents was I able to summarize? And this aligns to the product,right?

And the third is the outcome-based, as I said. How many business results did I generate? If I am helping the company hire people, how many candidates that I have put forward, how many candidates were hired out of those candidates, resulting in saving time?

Or how many qualified leads did I generate,right? So this aligns to your customer ROI. So now that you've understood the value that you are providing and you've decided your charge metric against it, we will see how this changes,right?

Like if you move from consumption-based to outcome-based, it is definitely easier to implement. Consumption-based is much easier to implement, but it is harder to allow in true value. Like if some company tells me and says, I allowed you 1,000 API calls, I do not know what those 1,000 API calls mean.

I want to see how many decks I generated, as in my previous example. But if you go from outcome-based to consumption-based, it is easier to sell. Like I can definitely go to a customer and say, I will increase your outcome, I'll increase your candidate hired.

But to attribute value is difficult. So that is where the balance has to be made, and data is required to satisfy and to make your case.

One of the pro tips is to translate value with credit. Like bundle the features into credit. Say that I am giving you 100 credits for the month, and then beneath, under the hood of the credits, you can have your own models how you get to that.

But that helps the customer to understand, okay, 100 credits and it will translate to this particular ROI. Once you've done that, then that is where you pick your pricing model. Now, is it a subscription fee? The usefulness of subscription fee or SaaS fee is predictable revenue.

It gives you a committed customer relationship,right? And then the second could be the usage fee, which scales with customer value, which protects margins. But the downside, as I said, is for the SaaS fee, your power users might burn your margins.

And for the usage fee, the customer might be hesitant in experimenting with your product. Like going full deep because they do not know what kind of an invoice will they expend on this. So pure subscription, pure usage-based was a thing of the past.

Now, as we saw in the previous slides as well, everybody is moving into the hybrid model.

So what is a hybrid model? A hybrid model will have a base fee, and it will have a scaling fee. The base fee basically helps you to establish a relationship with your customer. And the scaling fee or the usage fee on top of it will allow them to experiment as much as they want and then to pay for the value that they derive out of your platform.

So you are not alienating any of the users, any category of the users.

Once you've established your

pricing, then you build in the guardrails. Because a wrong bill can erode a lot of customer trust. You might be doing great for the 3, 4, 5 months, but if on the 6th month your bill goes wrong, bill goes very high, then those customers go.

And then you work so hard to retain those customers, but then they leave you. So what safety feature do you consider? Like you are giving them flexible pricing. Now you're building guardrails around it,right? As the design principle is fair, it's simple here.

Build fair pricing, but then do not surprise. So what we advise people to do is put in usage caps. Like I paid $20 and then I've been given 100 credits. I say that after 100 credits, I've built in a usage cap, you either pay more to go ahead or we will stop and you wait for the next month.

So that it is the customer that has remained in control of their usage,right? You build an automated notification. You tell them when they've used 50%, 70%, 90% of their allocated limits. Because this is building trust with the customer.

We are not trying to cheat them. We are just trying to inform them that this is what you've used. These are the things that you can go ahead with now. You can top up, you can do a manual top up, you can do an auto top up, or you can pause and then start the next month when fresh credits get allocated to you.

And then you set rate limiting so that no wrong code is burning through the limits,right? So this will protect you and your customers both. Once you've done these step 1 to 4, then the step 5 is you iterate,right?

You keep iterating. 84% agree that fast pricing adaptation is a key competitive advantage. As I said, your first model is a hypothesis, and you keep building on that pricing as your product keeps evolving. You prioritize speed. You do not wait for theright price,right price point, and wait for a year before you put it.

You put a price point there which you think is theright price point, and then you iterate. You talk to your customers. Those guys who churn, you talk to them and ask them why they are churning. Is it a product-market fit?

Then you work on your product. But is it high price? Then you work on your pricing,right? If they upgrade, you ask the same questions. You run A/B tests on pricing to find the optimum point, but you prioritize speed and you keep iterating.

And then you continuously realign to your value. Now, realigning to the value means as you are rolling out new features, you've already given them hybrid pricing, you've already put in number of credits. Under the hood, you can keep changing what those credits mean.

Do those 100 credits that you've given them mean 5 API calls of a certain category, 10 image generation of a certain category, whatever. So under the hood, you can keep changing them, but you constantly realign the value. So this is how all the companies have been thinking about pricing.

This is how we've been trying to help them. But what is most important in all this is, what kind of an infrastructure do you have for your billing, for your pricing that is helping you to do this? If every change costs you 3 months, 4 months, and a lot of engineering effort, then it is not worth it.

So that is why the infrastructure you choose determines how fast you can iterate. And from our side, the most flexible and complete billing solution in the market is we've got Stripe, and it is not us that is saying it.

78% of AI companies are building on Stripe, which is a testimony in itself. Most of the AI companies that you see here are building on Stripe. Like I said, Anthropic, OpenAI, Lovable, 11 Labs, Intercom, they're all launching their billing and pricing.

You might have associated Stripe with payments only, but in the last 2, 3 years, we've invested a lot into AI billing. So we've got Stripe, Stripe billing, which allows you to go with subscription pricing, usage pricing, hybrid pricing.

And as these companies are so quickly, within 10 to 15 months now, starting with retail, PLG Motion, going to enterprises, we've got Metronome that allows you to build all the difficult and complicated contracts with the enterprises, having minimum commitments, pre-commitments, overage prices.

So we've got that, and we've got the whole platform that allows you to do payments, tax, invoicing, revenue recognition on this AI pricing. So yeah, this is where we areright now, helping all our AI companies in the market.

So yeah, this is me. Happy for any questions that you have. Yes, please.

I think this is super interesting. With the advice around changing your pricing model fairly often, one of the risks is that that can cause frustration for customers, and then they might churn because of the sort of instability and it's less predictable to them what their costs are actually going to be.

Have you got any advice around how to?

Yeah, so what people are doing and what we also enable them to do is they sell credits,right? But what do those credits mean? Like you brought in, let's say, today in January, you had one feature that was your premium feature.

It was not replicated anywhere in the market, and you had assigned 5 credits for that feature under the hood,right? In 6 months, that feature becomes standard feature. The pricing has dropped. And in the meanwhile, you brought in new features because you are also competing in the market,right?

So for the customer, he just sees 100 credits. Under the hood, you are changing these calls or permutations. Like what feature means how many limits? So it remains transparent for the customer, it remains fair for the customer, but based on your product features, you can keep changing pricing.

Plus, we also have features where it allows you to grandfather pricing. Like you bring in a new version. I who have been using it still keeps getting it on the same price, but the new users have to pay more.

Yes, please.

How about ACV? Do you start to get better rates and more of an enterprise management with Stripe? Like how much payment volume do I have to do before I can start to get better discounting?

So again, more on the sales side, but it depends on the volume. Like your payment volume and your billing volume. Basically, we have a platform. We allow you to use as much of a platform as you want or as little of it as you want,right?

And then depending on the volume that is coming, and we bring in all together. Let's say you are using payment and billing together but not using tax. That is fine. You bring your payment and billing, and then our salespeople start getting into it.

The sticker price is, of course, there for everybody to see. I'm not really sure on what is the threshold that start bringing the price down because that's more on the sales side. But do come over to our booth.

We've got some salespeople there. They'll be able to give you a better answer to this. I've explained to you the mechanism, but the threshold they'll be able to answer. Yes, please.

Well, that's on the presentation. It was really interesting.

Thank you.

One thing I'm wondering, how does, for example, the pricing model of big AI labs relate to this iterative pricing? I feel like AI labs often have multiple plans, which have very constant pricing. And then the rollout of features always happen first on the expensive plans, and then they trickle down to.

That is true.

Modern pricing. But I don't really see they don't really use iterative pricing anyway,right?

No, no. They use it under the hood. So for them, for you, even if you go to 11 Labs, you'll see four kinds of plans there,right? Let me call it good, better, best, and then enterprise,right? You will just go for you go for the best,right?

They will keep adding features or moving features from one plan to the other. The pricing will they will try to remain constant with the pricing for you, but inside it, the features will keep moving. And that is why they want to give you credits, or we advise that you give credit to the customer so that all these features don't start interacting with pricing.

Like customer-facing prices, they stay constant, like linked to which plan?

Yes. Let me say, not the pricing. The customer-facing plan remains constant,right? Price might change again, but the features will keep changing because it has been abstracted by credits on the top.

Oh, OK.

Right? That's yeah, you had a question. Sorry.

Yeah, so my question is, does your platform provide a way to record every transaction in the system?

Yes. Every transaction.

That

costs us something and the user, we can track it?

Yeah. So what we do is, if the prompted like you make a prompt, the customer is ingesting some calls, you will send those calls to us. You will tell us we have all kinds of pricing in there: tiered pricing, dynamic pricing, dimension-based pricing.

You tell us what kind of pricing does it go, and then it comes in. We are able to rate it and price it for you. And then you can get the whole report on exactly why the invoice is what it is.

So we can give you all the detailed pricing.

That's pretty cool.

Thank you. Allright. If you have any other questions, then please feel free to come to our booth, floor 3,right? Thank you so much.