How to Monetize AI Apps, 7 Tactics to Close Sales Deals Faster - Tactician: #00111

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How to Monetize AI Apps

• Why Read: 

  • Gain insight on innovative pricing models for AI products that can drive faster adoption and capture more revenue

• Featuring:

  • Kyle Poyar, Operating Partner at OpenView and Palle Broe, Director, Monetization Strategy & Growth at Templafy

• Link: 

  • “How AI apps make money”

Key Concepts and Tactics:

• Recognizing the Opportunity for Pricing Innovation:

  • Point: The lack of pricing innovation among the first wave of AI apps presents an opportunity for the second wave to explore new models that can drive faster adoption and capture more revenue.

    • "We are seeing signs of very innovative pricing structures among the second wave of AI companies; these pricing models could unlock faster customer adoption while capturing more overall revenue."

    • "As a customer this is appealing as you are entering into win-win partnerships. The vendor is only successful if you are. This pricing also has the potential to increase adoption since customers only pay when the product delivers real results."

• Considering Success-Based Pricing Models:

  • Point: Implement success-based (or outcome-based) pricing models where customers only pay for successful outcomes, aligning incentives and increasing adoption.

    • "Fin (Intercom), EvenUp, Chargeflow (an OpenView portfolio company), and 11x.ai — covered previously in Growth Unhinged — are examples of companies that have implemented success-based (or outcome-based) pricing models whereby a customer only pays for a successful outcome."

    • "This is in stark contrast to a lot of the existing SaaS providers where customers often end up buying far more seats than they need. It is not uncommon to see monthly active user rates between 20-40%—where by definition customers are substantially over-paying for what they get."

• Understanding the Reasons for Limited Pricing Innovation:

  • Point: Recognize the factors contributing to the majority of AI apps adopting traditional subscription pricing models, such as simplicity, difficulty in implementing usage-based pricing, and focus on adoption over profitability.

    • "Keeps it simple: The core objective for most AI applications is to get users to adopt their product. Buyers are familiar with paying a monthly fee per user."

    • "Usage based pricing is hard to do: Let's be real—usage-based pricing is not easy to implement. It requires a strong data foundation, for instance, which is something many startups do not have early on."

    • "Don't want to limit adoption: Innovating on pricing can limit adoption of the product. Right now startups want to get as much usage as possible as they build out their products."

• Leveraging Freemium for Initial Adoption:

  • Point: Offer a variation of freemium, such as a free version, usage-limited free version, or time-bound free trial, to generate early adoption and usage while iterating on the product.

    • "A variation of freemium is present in about 70% of the AI apps we studied. The three variations of freemium we saw were: A free version (47%), A free version but limited in usage (3%), A free time-bound trial (16%)."

    • "AI apps tend to have fast time-to-value for new users. Freemium offerings help generate early adoption and usage as these companies continue to iterate on the product."

• Implementing a "Good-Better-Best" Packaging Structure:

  • Point: Start with a "Good-Better-Best" packaging structure to differentiate offerings based on customer needs and create a clear upsell path.

    • "When we talk with early-stage startups, we normally recommend starting out with a variation of a 'Good-Better-Best' packaging structure. It allows the company to differentiate offerings depending on the customer and creates a clear upsell path."

    • "Packaging strategies are often something that develops over time as the product matures and develops more functionality. Early on, you often don't have a lot to package as you don't know exactly who your customers are and how you should segment your product."

• Balancing Pricing Transparency:

  • Point: Consider the competitive landscape, customization needs, and flexibility when deciding on pricing transparency, as most enterprise AI apps currently do not share pricing details publicly.

    • "Most enterprise AI apps did not share any details around their pricing. They are likely doing that for a few reasons: It's a competitive space, Customization, More flexibility."

    • "In time, this pricing information will likely become public anyway given the rise of price benchmarking vendors such as Vendr or Tropic."

7 Tactics to Close Sales Deals Faster

Why Read:

• Practical tips and tactics for creating a sense of urgency during the sales process to help close deals faster.

• Featuring:

  • Steli Efti, CEO of Close

• Link: 

  • “7 Ways to Create Urgency in B2B Sales (and Close Deals Faster)”

Key Concepts and Tactics:

1. Know Your Customer's Pain Points

• "By learning your customer's pain points, then highlighting the benefits of your solution, you are able to show the customer how your product can make a positive impact on their business."

2. Create a Feeling of Scarcity

• "Introduce limited-time discounts, exclusive deals, or set deadlines for customers to take advantage of additional perks or bonuses. This tactic often works well as it instills a fear of missing out (FOMO) in customers, prompting them to act quickly."

3. Mention an Upcoming Price Increase

• "If your product or service prices are expected to rise in the near future, inform your clients. Knowing that they can lock in a lower price today will encourage them to act quickly, before the increase takes effect."

4. Make Customers an Offer They Can't Refuse

• "This strategy compels them to act quickly to take advantage of the deal, shortening the sales cycle."

5. Use Countdown Timers Strategically

• "The timer reinforces a sense of urgency to make a decision, as it gradually ticks towards zero—to buy, or not to buy. With a finite amount of time to purchase, many consumers will feel compelled to do so in fear of missing out on a good deal."

6. Help Prospects Realize the Cost of Procrastination

• Asking questions to remind prospects of their unsolved problem and the consequences of not taking action.

7. Use Social Proof to Your Advantage

• "Instill a sense of urgency in prospects, as they will not want to fall behind their industry peers."

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