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The Factory Floor is hosted by the three co-founders of Conversion Factory, the marketing agency at the forefront of SaaS growth, marketing, and tech trends. Episodes are released on Twitter one day early, @coreyhainesco.
Every other week Corey, Zach, and Nick break down what’s working right now in SaaS marketing, share real-world lessons from the field, and give you the strategies you need to outpace the competition.
You can also find us on YouTube, X, and everywhere you listen to podcasts!
Don't fall behind. Subscribe. Like. Drop a comment. Or not. The ball is in your court.
Nick Loudon (00:00)
Three, two, one. Ladies, okay, don't do that. Ladies and gentlemen, welcome to the factory floor. Today I am joined by guess who? The same two nerds I'm always joined by, Zach and Corey.
Today, we're going to be talking about, ⁓ once again, AI and how it's infiltrated all of our minds and brains and lives, of course, but specifically this time in the context of SaaS pricing. So obviously we work with a lot of SaaS companies. We talk to a lot of people in SaaS. And so how do you price your product? How should pricing exist in the world of AI? So that is what we are going to be talking about today. Does that sound good to you guys?
Zstvns (00:51)
No, I think we should change the topic.
Nick Loudon (00:52)
Let's change it, let's do something else.
Corey Haines (00:55)
curve off.
Nick Loudon (00:57)
Okay, let's do it. So ⁓ Corey, why don't you like just get us going, kind of give us like a broad overview maybe of, you you're the marketing guru at the very ⁓ top. So what do you see is the biggest place where AI is actually changing the way SaaS pricing works?
Corey Haines (01:16)
Okay. Here's how I think about it is that first of all, I think a lot of people have been like, you know, it's like, we're all like not interested in working. I'm like, we're all a little bit burnt out about how AI is changing everything, but like we have to know because otherwise you're going to get majorly left behind or screwed over. We're going to up shooting yourself in the foot. So like, this was one of the things I've been thinking about where it's like, Hmm, I don't know what the strategy is here per se.
but this is something that everyone has to be hyper aware of and that everyone's for sure thinking about right now because we're basically forced ⁓ to make some of these changes that I'm going to talk about. And it's not going to be the whole like, ⁓ SaaS pricing now is all based on like results and how it's all just about like, like success based pricing. I don't actually think that that's necessarily the point. I think that's one of the points we'll talk about.
kind of the nuances of it. But here's the deal. We had software 1.0, which was based off of on-premise installations on your computer and how they tracked that was per license, right? So you built software, you licensed a version, people pay for that. They install it on their computer. They can use it for as long as they want on their computer, right? And then we had this thing called, yeah, yeah, exactly.
Zstvns (02:40)
Shout out old Adobe users, right?
Nick Loudon (02:42)
Yeah.
Corey Haines (02:45)
Adobe
Word, Excel, ⁓ even like Salesforce, NetSuite. ⁓ Was it NetSuite or Netscape? was, yeah, I QuickBooks, right, was the original on-prem kind of software. So ⁓ all of those where the pricing was built around fundamentally how people used programs on their computer, which was that everything was installed locally. So.
Zstvns (02:55)
QuickBooks.
Corey Haines (03:13)
when you want a new version of software, you pay for the next version. You know, there's like word one, word two, word three, word four, so on and so forth. And that was actually a pretty good pricing model because they basically built software around having like these annual upgrades that they want you to do essentially and pack it full of new features and upgrades, things like that. Then we had this thing come around called the cloud, right? And this is basically web-based apps, software as a service.
where now there's no longer versions because people are shipping updates daily, sometimes even hourly. And so how do you charge for a license and how do you charge for something that people are constantly using on their browser, possibly even on different devices, different computers? Well, now I have the idea of subscriptions, right? So you essentially pay for access. It's like leasing software. Now,
So that's like software 2.0. Now I think we're entering into kind of already entered into an era, but we're all like figuring it out real time where it's really the software 3.0 where we've even gone beyond like the cloud and access based software. It's a lot more outcome based results paste. And it's based off of like computing power because now we're all renting software from Amazon, from, ⁓ Nvidia because everything is powered.
Nick Loudon (04:19)
you
Corey Haines (04:40)
by AI, is like really, really computationally heavy. Um, and so again, the pricing has to shift again because we're not just paying for access of software. Now we're paying for how much that software is doing for us because AI is expensive. So does that kind of like paint the picture a little bit about like 30,000 foot view last 30 years, basically.
Nick Loudon (05:00)
Yes, I think but It's
Zstvns (05:02)
yeah.
Nick Loudon (05:07)
and it's less like we're not necessarily saying like okay, this is how it all works now It's more like hey, this is the the change that's taking place and we're still
getting our footing or the world of SaaS is still getting its footing on how pricing should work in this new world. Like, it credits? it, know, whatever. There's multiple different kinds of avenues and we're still kind of getting our footing with this new ⁓ SaaS pricing three or software pricing three.
Corey Haines (05:34)
Yes. And the main difference is that in the 2.0 world, the software that you paid for was running all of its own compute, right? So whatever you do on there is powered by the servers that they pay for. software 3.0 world, now you're not just paying for access to that software and that compute, but also the compute that it's paying for and using from other platforms, all the AI providers, right? OpenAI, Anthropic, ⁓
Nick Loudon (05:45)
Hmm.
Corey Haines (06:04)
Gemini, well, Google, right? ⁓ So on and so forth, right? There's like five, know, Grok is one of them too. ⁓ So they have costs that they're paying for the passing on to you. And so now we have this kind of mixture of two different layers of computing that you're paying for, not just one.
Zstvns (06:06)
Really? ⁓
Nick Loudon (06:25)
Okay, okay, I think that's making sense. Okay, so then with the new, the new development, the new version three, we'll call it version three. What is like the stuff from version two that doesn't fit at all to version three? Like there's this doesn't work at all in v3.
Corey Haines (06:43)
Yeah, well, one of the big things I've been noticing is freemium actually, which is crazy because freemium was such a huge innovation for software 2.0 where people figured out that the computing costs for a free user was so low that they were like, let's just give it up for free. And then we'll have some kind of cap, some kind of paywall at some point that'll get people to upgrade.
And that'll be a huge advantage for us, both from a product and a marketing perspective, because it really takes the try before you buy mantra to like the ultimate extreme. The problem now with freemium is that the computing cost is no longer low potentially, right? The computing cost is high because the community cost is low for your own computing power, but not for the AI computing power that whatever software you're paying for.
is buying from the AI providers. So it could potentially be extremely expensive actually, right? Imagine you have Canva where it's like, free access to our little, you know, graphic design software. But then anytime you use an AI generation for graphics, it could cost them dollars per generation.
Zstvns (08:01)
Right, now this is, can you draw a distinction here between freemium and free trials? Because I think that'd be a, like, I don't see free trials dying, but freemium is going away.
Corey Haines (08:16)
No, actually they're not so dissimilar because if you think about it, someone could come into a free trial and also really abuse ⁓ AI features or AI usage that could rack up a bill of, you know, tens or even hundreds of dollars ⁓ if it's uncapped. And that's kind of the whole point of why freemium needs to be adjusted and is no longer the same as it will ever be is because anything that is uncapped when you're using AI,
is going to be expensive until potentially the AI becomes a lot lower cost. The computing power is super low now. And we're kind of seeing that where a lot of the AI providers will make their older ⁓ models and their like mini models, quote unquote, a lot cheaper, but it's also not really.
Zstvns (09:06)
Yeah.
Corey Haines (09:10)
they're not really incentivized to like keep a lot of those around because they're a lot cheaper. They want you to use the newer, bigger, beefier models that cost more, right?
Zstvns (09:14)
around.
Well, and I'm sure it just doesn't make sense for them to like to tie in your software product with a antiquated model either like an antiquated AI model. know, like why, why would you do that have and have them bifurcated that way? It would just be far more complicated. It's more to explain in your comparisons of, you know, like what does a free trial constitute or freemium constitute? It's like, you get the old models, but it's, and people have an even harder time delineating between that more confusion.
Corey Haines (09:50)
Yeah. And then they're not really getting the value possibly that's going to trigger them wanting to make an upgrade. Cause now they're like, did I really experience the full power of this platform? Was it really a free trial or was it a limited handicapped nerfed trial? Right. ⁓ now there's one other caveat to this, that, ⁓ this could also no longer be true if and once software companies start to figure out how to build and run their own models.
because then again, the computing power, once they bring that in-house, they can offer an open source model for much cheaper than the AI providers because they have all the control and all the compute, ⁓ which is going to be, you know, basically the difference of like manufacturer costs versus retail costs. Think about it that way, right? Like, like the consumer is paying the real retail costs of AI. The SaaS company is paying the wholesale costs.
Nick Loudon (10:39)
Mm-hmm.
Corey Haines (10:47)
but if they can get down to the manufacturer costs, then it's gonna be a lot cheaper.
Nick Loudon (10:52)
That's crazy. The whole framework is kind of wild how you could think of it just like any other product is being developed.
Zstvns (11:00)
Do you think that that could, is there an opportunity here for feature gating where like, know, so say somebody has AI as part of a, maybe their, their middle Goldilocks offer and then their premium offer or maybe like enterprise, but then the starting one doesn't have any of it. And you can start them on a free trial where they get access to all the AI tools and get to try them out for two weeks. And then they are.
push back to that base model or base plan that could be free, could be a freemium one, but doesn't have any of the stuff that they were just playing with and that actually showed them the value. It sounds like that might still be a thing, but maybe, okay, got it.
Corey Haines (11:45)
Yeah, yeah, yeah, I think so. There's
definitely, we're seeing with Notion, example, where you basically, SaaS company now has to adopt two simultaneous pricing models. One is the access for the software, two is the usage of AI features. Whether they're providing those in-house, more at the manufacturer level, where they're running their own models and their own compute, or if they're buying and...
Zstvns (12:03)
DA.
Corey Haines (12:15)
outsourcing all that compute to an open AI or an anthropic. ⁓ There will always now be some kind of usage based pricing tacked on top, especially for AI. And again, this goes back to, well, how do people use the software and where do the costs come from? Usage based pricing is essentially going to always be around now, or at least be a factor of any pricing model because
Nick Loudon (12:30)
you
Corey Haines (12:44)
that's part of the costs because when they're buying it from open AI or anthropic, they're paying for a certain number of tokens. Right. And so in the past you had a provider like AWS or Heroku, for example, where there's sort of like these managed compute solutions. You don't have to buy your own servers. You can just essentially lease from the cloud and they're going to give you some kind of computing power for really cheap. That gets you the bandwidth you need.
at a very like stable kind of rate. So every month you pay $10, you get two servers and that can handle X amount of users. And so the costs were fixed. Now the costs are always variable for AI where it's every single token you pay for every single usage, every single API ping essentially. So we kind of see like now there's going to be, there's going to be SaaS pricing and there's going to be AI pricing.
Zstvns (13:43)
Yeah, bracing.
Corey Haines (13:43)
and they're gonna
be bundled together.
Zstvns (13:46)
Do you think that that matters? having the, so for example, I just signed up for Weavy which is one of the node based design editors that Figma just acquired and their pricing, if I'm not mistaken, you do have a free trial where you get access to a certain number of credits and then you get access to, think that it's there. I'm pretty sure it's their most popular version where it has.
just the right amount of features and models, access to all the things that you would want in using that tool. And it came with a set number of credits. Now, if I wanted to pay for that software, I'm pretty sure they have a baseline tier, which is their lowest cost plus X amount of AI credits inside of there. And then there's like a credit cap on the lower tier. And then in the middle tier, you have another.
amount of credits, but you can go a little bit higher and pick how many you need and that adjusts your costs as well. Or, you you have the enterprise plan, is, you know, game busters. You know, get, get everything that you want because you're paying us so much money. So do you think that it's, you seeing anything with like the, way that those, it's almost like usage gating or usage tearing in addition to the credits? ⁓ or is it.
Corey Haines (15:03)
Mm-hmm.
Zstvns (15:06)
Do think that there's some utility of just having your baseline software costs and then on top of all of them, you have that other layer of, and by the way, if you want AI, you can just add as much as you want, regardless of what tier you're on, you're not gated based on how much you're paying for your base software package.
Nick Loudon (15:09)
you
Corey Haines (15:24)
Right, yeah, I think they're probably gonna be mostly unrelated where you can pay for any tier that gets you access to a number of users, features, capabilities ⁓ within your own platform. But then any of the AI enabled features or usage is going to be sort of a separate system. I think a lot of people right now are going with credits and some sort of credit package. And that's again,
Nick Loudon (15:34)
you
you
Corey Haines (15:52)
also just how open AI and Anthropic have been charging. Cause they're like, Hey, you sort of like top off, you know, you can buy, you can spend a hundred dollars per month and that gets you these credits that don't expire. Anything over that we charge you at some sort of usage. If you want to buy bigger packs in advance, you get some volume discounting, right? And then the idea of a credit is flexible enough to where you can make one credit equal five API calls, or you can make a hundred credits equal
Nick Loudon (16:19)
you
Corey Haines (16:21)
to API calls, it's sort of like up to you and how you're using the AI to figure out how to like pass that along to your customers ⁓ versus just copy and pasting what you're being charged.
Zstvns (16:36)
So like, well, cause there were some things like, so generating an image with GPT ⁓ image was way less credits than generating something with VO3, which is the Google video creator, right? So that's how they're having you buy those base amounts of credits so that you can, they're hedging, you your, your costs. Like if you're going to be doing a lot of videos, you're going to need a lot more credits. But if you're just doing GPT image gen, then you don't need as many probably.
Nick Loudon (17:02)
It's like this
very strange, like it reminds me of, what is it? Like you can buy credits in Fortnite. What's that called? V-Bucks? You know what I'm talking about? That to me, that's the itch that's being scratched is like, you could buy what? A thousand V-Bucks and it's $22 and you're like, how many dollars is a V-Buck? And the same thing happens with these credits. Like how many dollars is a credit?
Corey Haines (17:11)
B bucks. Yep.
Zstvns (17:13)
it VBucks? ⁓
Yeah.
Nick Loudon (17:27)
Okay, so then there are API calls. How many API calls fit into a credit? So how many dollars is an API call? And then like how many API calls does each user use? It's like this whole like labyrinth and weird like exchange rate to deal with. And it's honestly kind of annoying.
Zstvns (17:33)
Mm-hmm.
Corey Haines (17:46)
Yeah. Well, you want to go even deeper down that rabbit hole. It's because how LLMs work is they essentially tokenize a word and they have this whole crazy system that, you know, converts everything down into binary to where you can essentially turn a word into a series of numbers. And that's kind of what the tokenization process is. And so when you're buying tokens from open AI,
Nick Loudon (17:48)
Yeah, I do.
Corey Haines (18:15)
you know, a thousand tokens could be 500 words or it could be 200 words or it could be 800 words, just depending on the word and the word length and the sentence, right? The combination of sentences.
Nick Loudon (18:21)
depends on the word. ⁓
Zstvns (18:23)
The word. Yeah. Wow.
Nick Loudon (18:28)
That's unbelievable.
Zstvns (18:29)
So the bigger your words and the more eloquent you are, the more you're going to pay chat GPT. Yeah.
Corey Haines (18:35)
Yeah, pretty much, pretty much.
Nick Loudon (18:35)
That's what you gotta do. You gotta ask dumber questions to the AI robots.
Be like, make rich please. And it will dumb it down. It costs less tokens.
Zstvns (18:41)
Peace.
Corey Haines (18:44)
Right. Well, that
kind of is part of the magic of prompt engineering and what a lot of people have realized with coding, especially is you have a context window and a context window is essentially the short term memory of the AI in how much you can give it and then how much it can spit out. It's sort of like, if you told me, Hey, repeat after me. And then you told me like, I can only say so many things before like I starts to get fuzzy and I start
hallucinating maybe like what you, what I'm supposed to repeat back. And so people have realized, ⁓ instead of saying, make me an image that is photorealistic and X, Y, and Z people just say image colon hyper photorealistic detail. Like they just kind of mash everything into this like keyword blob because it uses less tokens.
Nick Loudon (19:18)
Yeah.
You
Zstvns (19:38)
That's hilarious. So Kevin Malone fares better with Chachubt than Robert California.
Nick Loudon (19:38)
Awesome, I love it.
Corey Haines (19:42)
Yeah. Why use slot
word when fewer do trick? That's exactly the AI mantra.
Nick Loudon (19:47)
Exactly. Yeah. That's what they've been teaching us this whole time. Okay. So I have like a larger question based on this token and usage pricing and all that stuff. Is the AI feature revamp of software making SaaS companies a lot less money? ⁓
Zstvns (19:48)
Yeah, exactly.
Nick Loudon (20:10)
or a lot more money? Is profitability going down? Because they're like, sure, they added this cool AI feature and maybe they got some new customers and maybe they can charge a little bit more, but the cost is just like, the scales are tipping in the wrong direction.
Corey Haines (20:25)
Yeah, that's a really good question because we look at companies like cursor, for example, why is cursor raised billions of dollars? It's because they subsidized the cost of the AI compute that they were paying for, that they were passing along those savings to their customers. Cause I remember even like a year ago in cursor, I was just vibe coding like crazy. Cause I was like, okay, they're going to charge me $20 per month.
Nick Loudon (20:43)
you
Corey Haines (20:53)
And based on how much I'm using all the AI, if I were to pay open AI directly for this, it would be like hundreds of dollars. Open AI is still getting paid. Cursor was just subsidizing it for me. They were eating the costs. So they can't do that forever. Right. And it's sort of like back in the day when a lyft was $5 or an Uber was, you know, $3 go down the block. And now it's like $20. So just go down the street because VC money was subsidizing it. Well, like
you can't change the unit economics, right? At the end of the day, open AI is going to get paid. At the end of the day, actually Amazon and Nvidia and Oracle and whoever they're like real computing ⁓ partners are like they're going to get paid. ⁓ And so right now AI is making startups a lot less profitable ⁓ until they start adapting to this needed change in their pricing model.
Zstvns (21:45)
Hmm.
Corey Haines (21:52)
and sort of having this, you know, manufacturer level, wholesale level, retail level pricing of AI and how they use that or pass that along to their customers. ⁓ in, in the long run, it totally can make SaaS companies a lot more money because instead of being maybe capped at a hundred dollars per month, possibly now can be a hundred dollars per month plus $200 in AI usage. Right.
Nick Loudon (22:00)
you
Zstvns (22:03)
Jesus.
Corey Haines (22:21)
And then maybe of that $200 in the AI usage, they have a 50 % profit margin, for example. So they just doubled the, they're kind of like take home, you know, profitability per customer by introducing this AI usage model on top of it. And it could be completely optional per customer, but it definitely has an opportunity for every single startups to increase their average revenue per user and even their profit per user.
Nick Loudon (22:28)
Mm-hmm.
Zstvns (22:51)
It makes, well it makes sense that it's costing a lot of money now, but you know, with all the things, it's going to eventually become more cost effective and it's just a matter time. Like can you hold out? And I think that by making those shifts and having the flexibility within your pricing that you'll be able to weather the storm a lot better. I'm curious, so what do you think, you've mentioned outcome based pricing before.
Nick Loudon (22:52)
Sick dude.
Corey Haines (23:12)
Mm-hmm. Mm-hmm.
Zstvns (23:20)
but I am curious, I'm curious how that's gonna go, especially when you have a lot of, you the marketing around software almost always comes down to increasing ARR or increasing MRR. So what happens when that train of thought goes all the way down? Shout out to our friends at Fletch, Anthony Pieri and Robert Kaminsky for highlighting that.
Corey Haines (23:35)
Mm-hmm.
Yeah. Yeah, exactly. I mean, that's definitely a big risk. It's one of the other reasons why I don't think that SaaS pricing is going to move completely to outcome based pricing or results based or success based, however you want to call it. That whole idea just being, instead of charging a hundred dollars per month, I charge $1 per valuable thing that I deliver to my customers. Right. And then maybe on average they do a hundred of those per month, but now it's a lot more flexible.
I still don't think that's going to be the case. They're having companies like, intercoms, fin agent, for example, that have like really moved to that model completely. It's like a really big bet. And I think that that can work when it can be a cost savings to your customers. Intercom was super expensive. Like, let's be honest. was, it was like dreadfully one of the most expensive, ⁓ customer support slash chat tools out there. ⁓
Zstvns (24:26)
Mm-hmm.
ridiculous.
Corey Haines (24:48)
And so people were like, I only pay for, you know, completed successful, support tickets. Cool. That can save me money. But when it starts costing people more money, they're going to be like, maybe we should go back to SaaS because it was kind of nice being able to predict all of our costs. I don't think that there's a world where anyone is ever completely comfortable with 100 % based used to base pricing. ⁓ and that's really what outcome based success based.
Zstvns (25:04)
You
Corey Haines (25:18)
results based pricing is I think that the future and really what people are going to adapt the most is going to be this combination of SaaS plus usage. And maybe your base SaaS kind of gets you a certain number of credits or a certain number of usage. And then anything above that you pay either in credits or tiers or, ⁓ or just like a pure kind of rate for whatever usage you,
Yeah. Usage metric you want to measure, but, ⁓ yeah, I don't think that it's going to go 100 % to outcome based pricing. So I think MRR is still safe. It's just going to be like MRR plus, and I don't know how we're going to start measuring that, but
Zstvns (26:01)
Yeah.
Nick Loudon (26:05)
Yeah, I don't because it's not recurring. That's like the biggest thing is like we all love this like XML per month. I make 10k a month blah blah blah blah, know, like that's the words that we like is the per month. And so this is like it of goes away. The first person I ever like, like heard this idea of like outcome based right was the guru online gurus who are like you pay when we you know, when you get a result or the cold emails and like you don't pay for anything until you get a booked appointment, you know, it's just like all this soup.
Zstvns (26:18)
Yeah.
Nick Loudon (26:35)
of ⁓ not SaaS, but service outcome-based pricing. Is that like who popularized this? And I'm not talking like usage necessarily. I mean like actual like outcome-based. Why is it like that the new fad? Does that make sense? Like it seems like a new way of doing things and it's more trendy if that makes sense.
Corey Haines (26:55)
Mm-hmm.
Yeah, I mean, I couldn't tell you like the exact origin. It's sort of like where did coronavirus come from? ⁓ Yeah, we don't know the exact moment. Right. Yeah, I guess it did take a while, but we did figure that out. ⁓ No, I think that that's again, probably just a that's like a tactic and something that's like, this is the way that everything's going. And people were getting tired of just
Nick Loudon (27:08)
I want the moment.
Zstvns (27:10)
Well, we actually
know that Corey. There's differences.
Nick Loudon (27:17)
you
Corey Haines (27:30)
paying for retainers that didn't go anywhere. And so they're like, if I can guarantee you this, which I think there's a lot of merit in that. But at the same time, ⁓ yeah, that was probably something that was just like popularized by some guru. Like you mentioned, ⁓ a similar thing I think has happened in SaaS too, where some people were like, Hey, outcome based pricing is the new big thing. Look, look at this. And I've not going to name names, but I've seen some people on LinkedIn be like talking about it as if it's already set in stone, but their examples they give are like,
There's like a few to several and they're all super well established companies that made a really big bet. And we still don't know how it's going to play out, like 95 % of all startups still today are still on the traditional SaaS model. Um, so I think it's kind of silly to be like, this is the future. This is inevitable. This is 100 % what everyone's going to start doing because we haven't actually even seen that play out.
Nick Loudon (28:28)
Go ahead, Zach. No, you go. No, you. No, you.
Zstvns (28:30)
Okay, go ahead Nick. No, no, okay. Fine, fine,
fine. Well, how does this play into things like the way that you market your SaaS, the way that you sell your SaaS if you, you know, we hear a lot of talk about things like PLG versus SLG and it seems like this has some trickle down effect to those areas.
What are you seeing as far as, you know, is that line continually being blurred? Are they merging together? Is there, maybe it's not even like PLG versus SLG anymore. What's the trajectory there?
Corey Haines (29:15)
Yeah, I think that the AI usage is also further popularizing the PLG (Product Led Growth) model because people want to get in there and try it for themselves, especially for this kind of AI ⁓ usage and AI based pricing that everyone's going to have to tack on to their existing models where you can't just sell AI over a phone call. You have to get people to use it. But at the same time, based on
Nick Loudon (29:39)
you
Corey Haines (29:43)
you know, the amount that they're using it and how they're using it, the requirements for using it. get to things like HIPAA and SLAs and data. is is the AI training on my data or not? And how is it containerized and all this kind of stuff that still also warrants a sales conversation and sales process essentially. And that's why I think there's kind of not going to be PLG or SLG anymore. Everyone's going to have to adopt.
both because everyone really needs to get people in the door to try and use their AI in order to probably even just get them interested in the first place. And then they're also going to inevitably need to have a conversation around all their requirements for the bigger companies. ⁓ so I really like, I've always been a big believer in PLG. I've never thought that it was going to like the whole world was going to be completely PLG.
Nick Loudon (30:13)
you
Corey Haines (30:40)
And I think AI is going to make this really, really clear where now the future is everything is going to be both. Why would you ever kind of, handicap yourself for put a ceiling or a floor on who you can attract and what prices you can get, what the types of customers you can get when people are going to expect that both of those options are going to be available. Like 10 years ago, maybe
We saw a lot of companies take the strategy of like, no, we don't want to have a enterprise sales process. We don't want to have big customers. We don't want to charge people a ton of money with AI though. I just don't see a world where that's ever the case. Like people are going to be reaching their ceiling all the time. You're going to have to have those conversations at some point.
Zstvns (31:32)
Yeah, and that makes a lot of sense because you, mean, I think of a company like Superhuman, know, where they onboard every single customer, regardless of their size. And that with all of these tools now becoming, I feel like the tools are becoming less expensive, especially in like the manpower behind them is becoming less expensive, even if the profits aren't there or showing it from the actual like,
⁓ financial side of things within the SaaS company itself, but as far as getting people to use your product and making it more widespread, everybody wants everything. It's like, what are you gonna compete on? Your customer acquisition cost is not going down, guaranteed. Like, ads are gonna cost more.
Corey Haines (32:11)
Mm-hmm.
Zstvns (32:19)
guess sending emails is gonna cost more. You're have to do a lot more to send out in the crowd and get people to at least get your foot in the door. And once you do get your foot in the door, why would you stop yourself from giving them the opportunity to hop on a call and get onboarded and just get into a sales led motion with that? Even if you...
like only have to do that and then it's off to the races for them. They no longer have to speak with the salesperson or even sign a contract. They just need more information upfront before making the buying decision. So yeah, do you think that this would apply to companies who are purely enterprise level? Like, you know, I'm thinking like a San Diego based unicorn like Kyriba.
You know, like what, what does some, or someone who only has enterprise deals with annual contracts only, how does it work for, for them? Or is it, is that a totally different conversation?
Corey Haines (33:15)
Mm-hmm.
No, I think it totally is. And that was going to be something that was going to bring up was I think the biggest change is going to be in kind of ushering in a lot more sales led companies to become more product led because again, you can't just sell AI over the phone. People need to see it, experience it, use it. So maybe it's not going to be completely product led per se, where you're just like anonymously seeing usage and like, Oh, that's cool. This big company signed up to start using me from my product.
but maybe it's more a ⁓ concierge pilot, for example, or maybe you're, can sign up, have a playground. You have a limited number of ⁓ kind of AI usage and they can simulate the type of thing that you're looking to do. And then maybe that prompts them to book a call, to start a sales cycle, to explore more, you know, personalized experiences using their own data. ⁓
Zstvns (33:54)
Mm.
Corey Haines (34:18)
it's, it's not a question of, you know, like a company like Kyriba or any really enterprisey software. ⁓ they have to let people use their products before signing the contract. Five years ago, that was not true. That was not the case today. It is like they have to use the software. They have to be able to,
Nick Loudon (34:43)
you
Corey Haines (34:46)
play with it, get their hands on it, see it, and prove that it's gonna work for them. And so maybe it's not product led per se, but it's not just going to be let's hop on a sales call for five weeks, five different calls, sign a contract, and then use the product anymore.
Zstvns (35:01)
room.
Right. They got to be able to play with it. think, so I thought of less annoying CRM who I think has a really nice solution to this. have a fully interactive demo where like, you can access it straight from their website. You know, it's like you click in, you can play. I don't know if it has any of the AI features that they have put out, but we use that all the time, the design team, because we were looking at like actually using their feature features to see how they worked and jump in there and play with it. And it was really interesting because then, you know, like my mom is,
sales rep for pet food suppliers is like, mom, you should check this out. Like it's really cool and you can play with it for free. And then if you want to ever actually use it, just let them know that Zach sent you because I'm a good, good contractor and I send clients business when I can. But I think that's having some kind of dummy playground. I don't see why anybody wouldn't do that.
Nick Loudon (35:46)
You
Zstvns (35:58)
You know, like why not? You know, doesn't make any sense to keep like, what are you trying to hide? Like, you know, the way the sausage is made or, you know, like there's, cause there's nothing that they're eventually going to uncover it. You might as well just let them play with it and then see if they really want it.
Corey Haines (35:58)
Exactly.
Mm
hmm. Yeah, I think that's the new, it's the new paradigm. And as it becomes more more competitive because people are building faster, offering more for less. ⁓ the waters are pretty frothy right now, so to speak. And so can you really afford to only be PLG or can you really afford to only be sales led? I don't know. I don't think so. I think that that's probably going to be a big mistake and everyone's kind of
everyone's kind of already realizing like, Hmm, it'd be nice to have best of both worlds. I would like to have the lower end of the market and the top end of the market. And there's no reason why I can't do both. And in fact, a lot of times that can really help with your acquisition strategy. ⁓ because you get a larger mix of customers, you're not limiting yourself to, my customer accession costs are $300, but, ⁓ I'm only our top end of our
available plans for people to sign up for are $50 per month, for example. And now we're like, okay, the math ain't math and super well, you mix in a couple of thousand dollar per month customers. And now you can kind of recoup your costs a lot quicker.
Zstvns (37:27)
Hmm.
Nick Loudon (37:27)
Okay, I have something that's a little bit adjacent to all this, which is not necessarily tied to AI. We've talked mostly about like tactics and strategies and things that we're seeing from like a broader perspective, but I kind of want to give people like something to chew on for like them to think about if they are a founder or thinking about how they're pricing their SaaS, because there's a whole nother side to pricing, which is like
the psychology of pricing and the like the position and the product, the fit within your competitors for pricing. There's all sorts of other things. So can you give me like what percentage is the psychology and what percentage is just the math and the tactic? Like if someone's like, I could think about all these things and like game it so that it's perfect, but they have disregarded the, let's say 90 % that they need for the psychological.
Corey Haines (37:58)
Mm-hmm.
Hmm.
Nick Loudon (38:24)
purchasing decision? Like how much should someone put into the psychology versus the math?
Corey Haines (38:30)
Hmm. Man, that's a tough one because you know, I've struggled with this with software for a long time because software is inherently utilitarian. Like people don't buy software for fun. They buy it to solve a very specific problem for them. and as soon as it stops solving that problem, then they're out. They look elsewhere. They cancel, ⁓ it's game over. Right. And so
Psychology, think only takes you so far for SaaS pricing because at the end of the day, people are looking for, does this add value to me or not? And there is kind of always an ROI equation going on through their head where they're like, Hmm, what are the prices? What am I paying for? And what is the value that I'm paying that I'm getting? Um, and so the psychology is like, Oh, can he use decoys?
the 99 cents versus the whole dollar, the ⁓ kind of like mix of options. It's like, well, I don't know. Like I think most software companies should probably have somewhere between one and three plans. And then now with AI, there's probably going to be some kind of ⁓ add on. Most of them probably should have some kind of free trial or freemium experiences.
Zstvns (39:48)
on.
Nick Loudon (39:49)
Add
on.
Corey Haines (39:55)
and then they should all have some kind of custom enterprise based pricing as well. That's like 95 % of the strategy.
Zstvns (40:01)
Good night.
Can I, because we've talked about this briefly before, and it's something that I frequently think about in the shower when I'm lying awake at night. Just like, is there any kind of status that's brought in with software or tools like this? Because it does happen in other areas where there's tools. know, know, Dewalt tools are more expensive than Ryobi or Cobalt, right? ⁓ So it does happen.
And I think you can see it with other areas, like even like, you know, a water bottle, which is more of a tool, but you know, like the simple modern ones do not cost as much as Yeti. And it's like, well, what are you paying for other than the label? Right? Yeah. Me and Nick right here with the examples. How much was that Nick? $10?
Nick Loudon (40:50)
I don't know, my wife bought
it, I have no idea.
Zstvns (40:53)
It's less expensive, but that's okay. I'm not splitting hairs. I just know that that's the...
Nick Loudon (40:58)
I have a DeWalt
over on the other side of the room. I'll have you know.
Zstvns (41:01)
Well, and then I have
Ryobi, so it's like, you I bought a more expensive water bottle and Nick bought a more expensive power drill than I did. ⁓ And I was thinking, I think that the only thing that works here as far as like a status symbol is if you solve a really big problem that not many other competitors can solve. You know, like if you are someone who like deals in like an either
very secure or highly not volatile, but like precious or that just highly valuable area. Like if you're dealing with, ⁓ companies that only do, you know, $10 million a year error or, or higher. and you have a solution that's for them. You could have in that scenario, you could have the Goliath type of
customer which only has enterprise plans, they're all special contract value, ⁓ each one is treated like a custom agreement with scope of work and service level agreement and things like that. And you can have somebody who is trying to enter in that same space and maybe compete on a more like a typical PLG route and show like, no, no, no, our solution is way more cost effective, it's way more.
affordable than these other guys, can do all the exact same things. And I wonder if they wouldn't get picked simply because they don't have the kind of clout that, somebody would be looking for. You know, like does that register or, I mean, it is util it's util it's utilitarian, but it's more from a perspective of.
Corey Haines (42:39)
Mm-hmm.
I think so.
Zstvns (42:48)
This other company has a lot more trust and reputability compared to this one, is like a fledgling startup compared to an established player, regardless of what that means. It could be something as simple as look. It could be the way that they price. We only do contracts versus you could sign up for free right now and try it out.
Corey Haines (42:58)
Yeah.
Here's where my mind goes with that. It's a little bit ⁓ a non-answer. It's kind of a political answer. But ⁓ the way that my brain goes with the idea of like brand power in the pricing equation is ⁓ not as much about status as much as it is about taste. ⁓ Here's what I mean is I think about the way that people think about and compare
Chat GPT versus Claude, for example, Claude in their branding and even down to the way that they fine tune their models and hard code in, if you want to call it that, certain types of behaviors into their AI appeals to a certain type of person with a certain type of outcome that they're looking for in a particular way. Let's just say,
versus ChatGPT feels a little bit more like the layman's tool, where it is a lot more mass market. It's a lot more broad, generic. In that sense, it's less opinionated. Even their branding is like, you know, hyper-minimalistic, especially for someone like ChatGPT where everything is sort of like on a gray scale. And there really doesn't feel like you're getting anything opinionated from OpenAI. ⁓
Zstvns (44:28)
Yeah.
Corey Haines (44:37)
versus maybe even other models like Gemini or ⁓ let's just say like Grok, for example, where people know that Grok is a little bit more unhinged and maybe it's willing to do certain types of content or responses that other models wouldn't. Even we have like, now there's a lot of models where we're kind of seeing the divergence of models and what they're good at and what they're used for because they keep having to fine tune for certain use cases.
that they do inherently become different. And maybe there's some pricing power in that from the model perspective too, where it's like, I can envision a world and I've kind of already experienced this where sometimes the ⁓ SaaS company will tout like, we have AI features. And then I can see that it's open AI four, ⁓ mini or something under the hood, which is like, you know, kind of a piece of garbage by now. And then I look at another tool
Zstvns (45:29)
All right.
Corey Haines (45:35)
And it's like, no, we only use top of the line models and or we have our own model that we're fine. Fine tuning. I think about cursor, for example, they made their own model ⁓ recently called Composer One. And it's I believe a fork of a Chinese model. I think maybe even like Quinn possibly. But they're fine tuning and personalizing with their own opinions and taste. So there's maybe something there around like Nike versus Adidas.
Nick Loudon (46:01)
Interesting.
Corey Haines (46:05)
or Louvaton verse Hermes.
Nick Loudon (46:05)
Yeah, same function, different form.
Zstvns (46:05)
Yeah, well, yeah,
the strange thing about that is, so ChatGPT, I'm looking at the pricing right now, and ChatGPT is free to start, so is Claude. Claude's pro version is $17 per month annually. Hang on, let me see here real quick.
Corey Haines (46:27)
I it's 20 per month. I think so as chat2bt.
Zstvns (46:30)
It's 20, yeah, they're both $20 a month of build monthly. But, well that's totally a separate equation as far as showing your annual price versus your monthly price to start Claude watching you. But then Claude's max is $100 up. So it's interesting, they are playing a little bit of a game and I'm sure they're aware of like, they're making it difficult to decide between their high-end models and the high-end packages. But the baseline ones are exactly the same.
Nick Loudon (46:59)
Byte size, yeah. Wow. OK, we're coming up on time. Is there anything else you wanted to say before I finish out with what I wanted to say?
Zstvns (47:00)
Yeah, but bite-sized.
Corey Haines (47:11)
⁓ I guess like my parting words are, think about this really thoroughly. Talk to us if you need some help thinking through this. But really honestly, like, this can basically make or break your business if you're a SaaS company over the next couple of years. Because again, if you could unknowingly be eating a lot of the costs and then you're not profitable and or not up to snuff.
with your competitors and how they're rolling out AI features or bundling all their pricing and packaging. But number two, it's a huge opportunity as well. And so like get this right and it can be a huge growth ever for you. It can make you a lot more profitable. And so it's important to like think about this hard now.
Nick Loudon (48:04)
at this guy put it on a poster ⁓ okay thank you ⁓ before we go we have Nick's dumb idea of the week okay so while we were talking I had something that hit my head which it related to the tokens buying tokens okay so there there's the story have you guys heard like how Sam Baker and free like got rich at the very beginning how he like was buying Bitcoin in like the US and like selling it in China or something and there was like a
just a slight difference, yeah, Japan. so he made like, yeah, arbitrage. Okay, so where is the AI token arbitrage? And can we capitalize, like, where can we like bulk buy a bunch of tokens and then like sell them somewhere else where there is money? That's my dumb idea of the week, okay? If you guys have an idea, you can chew on it, let me know.
Zstvns (48:35)
of time.
Corey Haines (48:57)
Not a dumb idea actually. And it's already, there's businesses being made off of this. Yeah. Where they basically make themselves a gateway or a router for any model that you want to use. And then instead of paying directly for each one of those models or providers, you pay them and then they just have a teeny, teeny, teeny, upcharge, right? It's sort of like credit card processing. You just add like,
Nick Loudon (49:00)
Bent on. Dang it.
I'm a genius. Yeah, yeah.
Zstvns (49:26)
Yep.
Corey Haines (49:26)
3 % on top.
Zstvns (49:27)
Yep. Gosh.
Nick Loudon (49:29)
I knew it. was like, dude, there's gotta be so you can bulk buy AI tokens. Like, come on, this is like, this is Bitcoin is here. Like, that's exactly what it is to to anyone who doesn't actually know how to do it. Dang it. Okay, well, next on my idea of the week turned out to be a good idea of just like probably two years late. Okay, well, thanks for listening to the factory floor and we will see you guys on the next one. Peace out.
Corey Haines (49:36)
Yeah, yeah. Right.
Zstvns (49:37)
No brainer.
Corey Haines (49:40)
to arbitrage.