A version of this post appeared in an article in Innovation in Business Magazine in Spring 2024.
Artificial Intelligence (AI) is becoming increasingly prevalent. While it’s not yet doing the stuff of sci-fi, its applications are many and varied, from the purely process-driven to the generative, carving a space within all business sectors. And it’s amazing. It’s saving us all time and, often, money. Compliance is becoming easier, research faster, even traditionally creative processes are getting a helping hand. In many cases, it means that businesses can do more for less. But does this mean that the savings should be passed on to customers?
The problem of AI and pricing
The Simon-Kucher Institute estimates that around 20% of all professional services companies will have to change their pricing model within the next five years. Results-based pricing is difficult to implement, measure, and maintain. Subscription-based pricing carries a whole range of issues. And charging by the hour is not only outdated but with AI reducing the time and effort that goes into your billable tasks, it means you face reducing the bills you present to your clients to reflect the reduced time. Even if AI means that your work is getting faster and more accurate, you’re ultimately charging less for more. It isn’t fair, but it’s also an entirely avoidable scenario if you take control of your pricing model. And yet, despite the growing impact of AI, so far, 0% of firms have plans in place to change the way they price their services.
Time/Effort-based pricing is such an ingrained part of professional business services billing that most people rarely consider it. But what does it mean? You’re charging your clients not for what you can do for them or give them but for the amount of time you spend doing it. And with AI, that form of quantification is simply no longer relevant. Instead, you need to be shifting the emphasis onto what you can deliver to your customer. Because when it comes down to it, the only thing your customers care about is the quality of the work you deliver, not how long it took you to complete it.
The value of deliverable-based pricing
With deliverable-based pricing – also known as output- or asset-based pricing – you are no longer dealing in time measurements and the perceived value of the individual responsible for each section of the allocated task. You charge for a cohesive and invaluable service – audits, cost and efficiency reports, TikTok takeovers, in-depth training bibles and one-to-one training sessions. Each item is meaningful and carries innate value for the client in a way that time/effort-based pricing never has. And when that becomes the case, how those tasks are completed and who they are completed by – senior account manager, intern, AI – becomes totally irrelevant. All that matters is that they are completed to the desired standard. But that raises the question of how to price your deliverables once you’ve taken the effort out of the equation.
Moving into a deliverable-based pricing model
Time and effort-based pricing is easy. You pick an hourly rate and multiply it. Job done. Moving away from that status quo understandably feels daunting. But change is inevitable, and when that’s the case, it’s better to make the move while you have the luxury of time, without competitive pressures to worry about. There are tools available – configure, price and quote (CPQ) software for one – but it comes down to getting to grips with exactly what your business does, understanding your past performance, and creating a framework to categorise your services. Do that, and you’ll soon put a price on each of the deliverables your company deals in.
AI is changing a lot of things. And its impact is going to be amazing – it holds the potential to do so many incredible things for your business. But it will also mean that you have to rethink some of your established processes including pricing. Getting that right will have to be a priority if you want your business to receive the maximum benefit that AI can offer.
