What happens when AI changes what software can do faster than companies can figure out how to charge for it?
Rob Litterst is co-founder of Pricing SaaS, focused on SaaS pricing and AI monetization, and a former pricing strategist at ProfitWell. His work explores how software companies price, package, and monetize products as AI changes the value they deliver.
In this episode, Rob and Mark Stiving unpack the shift from seat-based subscriptions to credits, usage-based pricing, AI agents, and outcome-based models. They explore why customers may still prefer familiar pricing, when credits make sense, and why pricing should start with buyer segmentation rather than the latest trend.
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Why you have to check out today’s podcast:
- Understand why credits are gaining traction and how they can give vendors cost control while offering buyers flexibility.
- Learn why broad platforms may suit credit models, while focused solutions can be easier to price around specific outcomes.
- Discover why outcome-based pricing is difficult to implement, from agreeing on outcomes to proving attribution and earning buyer acceptance.
- Explore how hybrid seat-and-credit models can introduce AI without disrupting existing customer relationships. See why understanding buyer personas and segmentation is foundational to pricing and packaging.
“The more specific your solution, the more specific the pain points you’re solving, the more specific the outcomes that you’re generating, the easier it is to price on a consistent outcome and kind of, like, prove that out.”
— Rob Litterst
Topics Covered:
01:00 – How Rob Found His Way Into Pricing. From SaaS sales at HubSpot to startups and ProfitWell, Rob explains how pricing and packaging shaped his experience.
04:30 – Value Metrics vs. Pricing Metrics. Mark and Rob debate the terminology and the difference between what customers perceive as value and what a company charges for.
09:30 – Are Credits Just Company Currency? Why credits can help broad platforms support different use cases while keeping subscription costs predictable.
12:00 – Platforms vs. Solutions: When Credits Make Sense. The more specific the problem and outcome, the easier it may be to price a solution directly rather than through credits.
16:00 – Why Hybrid Pricing Is Taking Off. How companies combine seats and credit allowances to introduce AI while preserving familiar customer relationships.
18:30 – Can AI-Native Services Charge for Outcomes? The conversation explores software companies that use AI to deliver a job or service and price around the result.
20:30 – Why Outcome-Based Pricing Is So Hard. Customers and vendors must agree on the outcome, the vendor must deliver it, and the impact must be proven and attributed.
26:00 – The Hidden Profit Advantage of AI. Rob explains how selecting and routing to the right AI model for each task could improve product economics.
28:30 – Why Buyer Segmentation Comes First. Rob shares the ProfitWell sequence: buyer persona, pricing structure, packaging, and then price points.
31:00 – The Pricing Fundamentals That Still Matter. Why knowing the buyer and understanding pricing fundamentals remain essential even as AI changes the market.
Key Takeaways:
“Customers just want to pay for a seat.” – Rob Litterst
“Credits can offer flexibility for broad platforms, but buyers may prefer direct pricing when the solution and outcome are clear.” – Rob Litterst
“I think a bunch of companies have tried to go to market with outcome-based pricing and found out that their customers just have no interest in it. Like, they don’t want it. They just wanna pay for a seat.” – Rob Litterst
Connect with Rob Litterst:
- LinkedIn: https://www.linkedin.com/in/roblitterst/
Connect with Mark Stiving:
- LinkedIn: https://www.linkedin.com/in/stiving/
- Email: [email protected]
Full Interview Transcript:
(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.
Rob Litterst:
In the pricing space, people are always thinking about what pricing strategy makes sense for the company, right?
I think so few people think about what customers actually want and how they actually want to buy.
And people were so gung-ho about outcome-based pricing and outcome-based pricing being so customer-friendly because, you know, it’s like helping you do these things.
But then I think a bunch of companies have tried to go to market with outcome-based pricing and found out that their customers just have no interest in it. Like, they don’t want it. They just wanna pay for a seat
[Intro]
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Today’s podcast is sponsored by Jennings Executive Search. I had a great conversation with John Jennings about the skills needed in different pricing roles. He and I think a lot alike. If you’re looking for a new pricing role or if you’re trying to hire just the right pricing person, I strongly suggest you reach out to Jennings Executive Search.
They specialize in placing pricing people. Say that three times fast.
Mark Stiving
Welcome to Impact Pricing.
I’m Mark Stiving. I help companies win more business at higher margins by teaching them how buyers think about value and price.
Our guest today is Rob Litterst. Here are three things you wanna know about Rob before we start.
He is the co-founder of Pricing SaaS, focused on SaaS and AI monetization, he was former ProfitWell pricing strategist who worked with many, many SaaS companies there, and I subscribe to all of Rob’s content and find him to be an amazingly clear thinker. Probably because he thinks like me.
Welcome, Rob.
Rob Litterst
I love that.
I’ll take that as a compliment, ’cause I also read all of your newsletters, and I feel like you’re one of the clearest thinkers in this space, so I will definitely take that as a high compliment.
Mark Stiving
Yeah. Hey, so how did you get into pricing?
Rob Litterst
So I was in SaaS for about seven years before I stumbled into pricing, and I started in SaaS as a BDR at HubSpot, was in sales there for about four years.
And, like, little unbeknownst to me at the time, well, I kinda learned what it’s like to sell when your pricing model makes sense, right? And, like, when you have a solid pricing and packaging strategy.
And then I left HubSpot after about four years there and went to a couple of startups and saw what happens when that’s not the case.
When you either don’t really have pricing totally figured out, or you kind of go through… The second startup I went to went through, like, a big pricing change where they basically tried to, like, reverse engineer a value metric, but, like, when they didn’t actually have, like, usage-based pricing in the beginning.
And I just saw how hard that was to talk to existing customers about, you know, like, “You were spending $40 on this. Now you have to spend 4,000.”
Those conversations don’t go well typically. It’s-
Mark Stiving
Not at all.
Rob Litterst
No matter how you try to talk about value, it’s really, really hard to make those conversations work.
So it was… I was getting to the point where I was kind of, like, ready to move into something new, and an old friend led people ops at ProfitWell, and she reached out to see if I wanted to join the sales team. I took a look at the company and saw that they had a listing for strategist, and was like, you know what?
I’m, like, kinda trying to, like, pivot out of sales.
I’d be really interested in the strategist role. And like from the get-go, like the interview process, like I just knew I had to work there. I was just like so excited about what they were doing. I was watching pricing page tear down, learning all… Like learning words for all these things that I’d seen in my life as a, a SaaS sales rep and had like experienced.
Like the word value metric, like I had no idea what that meant before getting interviewed there.
And so I went through that process and just realized, like, “I need to work here. I need to get this job.”
And so I, I remember I… My last interview was right before my bachelor party, and I was flying out to– We went to Portland, Oregon for my bachelor party, and I was sitting next to my brother-in-law, and I was writing these thank you notes to all the people that I interviewed with.
They had like a very elaborate interview process. I think I probably interviewed with like 10 people on that day.
And so I tried to send like a very specific thank you to literally every single person that I talked to, and it took the entire flight. My brother-in-law was like trying to order beers and stuff, and he was like, “Dude, what’s going on?” Like, “Can’t we have some fun? Like this is crazy.”
And I just wanted it so bad that I just spent the entire flight sending thank yous, and literally after they offered the job, they were like, “The thank you notes are what did it.”
So I snuck in the door with thank you notes and fell in love with pricing right away.
And after about a year there, started my newsletter, Good, Better, Best, and that kind of sent me down the path of like pricing content.
Mark Stiving
It is okay to sacrifice a few beers for a, for a future. How’s that?
Rob Litterst
Exactly. Exactly. 100%.
Mark Stiving
So I told you I might disagree with you, and so you just brought up the first thing I wanna disagree with you on, if that’s okay.
Awesome.
Rob Litterst
Yeah.
Mark Stiving
I had Patrick Campbell on the podcast many years ago. He was amazing, loved it, and I actually told him the same thing I’m about to tell you.
Rob Litterst
Yeah.
Mark Stiving
I hate the fact that you guys use the word value metric. I hate it.
So I think what you describe should be called a pricing metric. It’s what I call it all the time, and I think of a value metric as how a customer perceives value.
Rob Litterst
Mm.
Mark Stiving
And a pricing metric is what we charge for.
Rob Litterst
Yeah.
Mark Stiving
So I just thought I would throw that out there and just say how much it, it annoys me that you guys made that so popular.
Rob Litterst
I think it’s one of the most contentious terms, like, in the pricing community, ’cause, like, I’ve definitely heard other people say, “No, that’s a pricing metric.
Like, that’s not a value metric.” Honestly, I don’t have, like, a super strong rebuttal. It’s just, like, in my head it’s a value metric at this point.
So I have this weird thing where, like, like, the main metric that anchors a price- like, a pricing strategy, I will call the value metric, and then, like, other kind of, like, usage-based components underneath the surface I will call, like, pricing metrics.
So, like, even in my head it does- it’s, like, not totally clear, which goes against you saying that I’m one of the clearer thinkers in the space.
Like, I make a mess of one of the simplest metrics that there is. But I’m open to either, so yeah.
Mark Stiving
It’s okay.
Rob Litterst
I respect it.
Mark Stiving
All of our listeners just heard my opinion really strongly.
Yeah. We’ll drop it.
Rob Litterst
Yeah.
Mark Stiving
Okay. So before I hit record, you and I started chatting, and oh my God, we could just go on for forever on this. But let’s talk about AI, and it feels like pricing of AI is just changing every week, or at least my thoughts are changing every week on this stuff. What are you seeing?
What do you think the big changes are in what AI is driving for us?
Rob Litterst
Yeah. So I think what’s, like, super interest- Like, so I think credit models were kind of, like- Actually, I think like AI add-ons were kind of like the first wave that we started to see is like people would like kinda package this new like AI functionality as an add-on.
Then we started seeing a lot of companies start bundling their AI features into kinda like their core plans. And then from there, we started to see like these credit models start to emerge, where it’s like you get this allocation of like 200 credits a month with the pro plan, 500 with enterprise or whatever it is.
And that’s starting to kinda like take off quite a bit. And now I think everybody’s still curious about credit models. But what we’re starting to see now is we’re starting to see like actual agents emerge on pricing pages and like almost kind of like blend in with the existing plans.
And we’re starting to see like new features that are part of that.
So like think about like skills and routines.
And I think like more broadly, something that we’ve seen since all of this started happening, is that like all the functionality that starts on the ChatGPT pricing page and the Anthropic pricing page makes its way down to the app layer and is just kind of like built on top of from whoever it is, like if it’s HubSpot or Notion or whatever it is.
Like they’re building their own version of deep research, of skills, of routines or whatever it might be. And so I think like what’s really interesting to me, like right now in this moment, is this kind of like variance between the kind of like simple repetitive tasks that an agent can do and the super hard, like almost human-like tasks that an agent can do, and figuring out like how to price those two extremes.
Like I think that’s really hard, and I think it’s like, like last week I wrote about how DeepSeek has this model now that’s like super, super cheap, and it can do all of these like kind of rote tasks really quickly, really easily, and really cheaply.
And then Astra came out last week from ChatGPT, and it has this like amazing computer use functionality.
I’ve been trying to use, do like the computer use thing with Claude’s Chrome extension, and like for anybody listening who hasn’t like seen it or used it, it’s basically like the computer using or the AI product, like using your computer the way that you would, like logging into an app and doing things, or like taking over your browser and doing things.
And so I used to try to do this with Claude’s Chrome extension, and it just, it was super clunky and slow and like not great.
And I haven’t used it within Astra yet, but all the feedback is that it’s like incredible and very fast. And so, like some people are likening it to like what agentic coding meant for engineers, computer use could mean for like all of these other functional disciplines, right?
Like marketing or sales or, or whatever it might be. It’s like if you could code through Claude or whatever, now if you have computer use through Astra, it’s like it can take over all of these like account research or like putting together like a marketing campaign or whatever it might be.
And so that sort of stuff, like that sort of functionality, I think gets priced closer to labor, whereas the DeepSeek stuff we were talking about earlier is almost so cheap that you could just bundle it into your product.
And so, I think it’s gonna be really interesting to see how companies kind of grapple with that tension, like just the sheer breadth of like what AI can do now and the differing price points along that spectrum.
Mark Stiving
Yeah. So you bring up two different topics that I’d really like– that I think about a lot and- Yeah and I’d love to hear your opinion or thoughts about. First one I wanna bring up is credits. Yep. So you brought up credits and, and let me share my opinion of credits and tell me that I’m totally wrong.
Rob Litterst
Yeah.
Mark Stiving
I think credits are simply a company currency.
Rob Litterst
Yeah.
Mark Stiving
Right?
Rob Litterst
Yeah.
Mark Stiving
There’s nothing magical about it other than I’m gonna get a customer to give me $10,000, and then I’m gonna tell them how they can spend it in my company store.
Rob Litterst
I think that’s 100% right. Yeah. I think that’s the best way to think about it, for sure.
Mark Stiving
Okay.
Rob Litterst
It’s like a video game. Yeah, like video game or company currency, exactly.
Mark Stiving
Yeah, and, and so people use credits for several different reasons, but one of which is we’re not really clear on what our value is. As the seller, we’re not.
Right. And by the way, as the buyer, we’re not really clear what the value is.
Rob Litterst
Right.
Mark Stiving
And things are moving so fast that we don’t know what the value’s gonna be like tomorrow.
Rob Litterst
Right. I think that’s totally right. I think, like, credits are great when people can do a lot of different things with your product, and it’s really hard to pin down, like, exactly what people are going to do with your product, right?
So, like, if you– Like, let’s say it’s Notion, just to bring one up.
So it’s like if you are using Notion as kind of like a repository for knowledge management, you know, maybe credits consume, like, a certain amount of, like, database fields or something like that, right?
But if you’re using Notion for, like, content creation and you want Notion to, like, plug into your content tools and, like, pipe your content back and forth, like, maybe that’s a different type of currency.
And Notion’s such, like, a kind of broad horizontal product that, like, not using credits and, like, specifying, like, how many of each of those metrics go into each plan or whatever it might be, like, you could land in an area where your plans just, like, don’t really make sense for people.
But I think credits kind of give you that flexibility with the predictability of, like, knowing what that kind of top-level subscription l- looks like, and that’s why they’ve gotten so– Just the sheer breadth of what AI can do, I think, is why they’ve gotten so popular.
Mark Stiving
Right, and it allows Notion to control their costs, right? Totally. To not get blown away by costs.
Rob Litterst
Exactly.
Mark Stiving
So-
Rob Litterst
Exactly.
Mark Stiving
Yeah. Okay, so we’re on l- we’re on sync there. Now I’m gonna give you the next one, and that is the difference between a platform and a solution.
Rob Litterst
Yep.
Mark Stiving
And so I would argue that what you just talked about with Notion is it’s a platform because we can do so many different things and solve so many different problems, and yet as soon as we find an agent that solves a specific problem, now I can put a price on it, right?
I actually know what the value is of that thing, and I can charge you money instead of credits or some ethereal something.
Rob Litterst
Right. I think that’s totally right, yeah.
Mark Stiving
Okay. Got it. And so are credits gonna be around for a long time, or are they gonna go away?
Rob Litterst
So, like, this is, this is, like- What I’m trying to think about too, like I think in the pricing space, people are always thinking about like what pricing strategy makes sense for the company, right?
I think so few people think about what customers actually want and how they actually want to buy.
And I honestly think like, like people were so gung-ho about outcome-based pricing and outcome-based pricing being so customer-friendly because you’re like, you know, it’s like helping you do these things.
But then I think a bunch of companies have tried to go to market with outcome-based pricing and found out that their customers just have no interest in it.
Like, they don’t want it. They just wanna charge– they wanna pay for a seat. And so I think similarly, like we’re probably no- like, we’re probably not even at like peak credits yet.
Like, I think more companies will move towards credits. And I think if that becomes kind of like the prevailing strategy that buyers are used to, and companies are doing it in a way where, you know, it’s not super confusing and like buyers can actually figure it out, I think more buyers are going to want credits because they’re gonna be used to using them.
But that assumes that like companies are using AI the same way that they are now in the future, where like I do think there’s a world where more companies kind of like let their customers bring in their own models, and then that kinda like makes credits unnecessary to a certain extent, I think.
So I don’t know. Like my, my first answer is I do think credits are gonna be a-around for the next like year or so, I would say. I think like going further than a year, I feel kind of I feel like I’m just setting myself up to be, to look like an idiot.
But I think at least for the next year, like credits still seem to be like a pretty safe space. And I like, like you mentioned, credits kinda protect the vendor because they make sure that they can keep their margins intact.
They also protect the buyer because there’s kind of like this platform fee-esque like license and then like a certain amount of like credits bundled underneath it.
So there’s the same predictability on the buyer side that I think CFOs really like, with some flexibility underneath the hood on like how you can actually use the product.
So I do… Like I know credits have gotten a lot of heat because like I was talking to a, a pricing leader a couple weeks ago, and she said they have a 45-page internal FAQ for their credit model.
So it’s like that sort of stuff I think drives people crazy because it’s like, who has time to read a 45-page credit model FAQ?
Mark Stiving
Your AI.
Rob Litterst
Yeah, exactly. Exactly. Claude. Claude has plenty of time.
So true. But I do think like at the end of the day, it is a great model for both like vendor and customer because it kinda straddles that line with, with flexibility and predictability.
Mark Stiving
Okay. I like your answer, but I’m gonna give you mine, if that’s fair.
Rob Litterst
I love it. Yeah.
Mark Stiving
So my answer is credits will be around forever for the platforms.
Rob Litterst
Mm. Okay.
Mark Stiving
Right? And the closer you get to a solution, buyers don’t want credits. I’d rather pay money than have a credit.
Rob Litterst
Yeah.
Mark Stiving
Right? I wanna know what I’m buying. And so I think people that are selling solutions, that’s gonna move away from credits.
Rob Litterst
Okay. So, like, the more defined the outcome, the less likely you are to have credits? Yeah, I like that.
Yeah. I think that’s… So I wrote something, and I phrased it horribly, and, like, somebody wrote in when I published this newsletter like, “Dude, you shouldn’t have named it this. You should’ve named it something else,” and they were right.
But I think that’s totally right. Like, I think the more horizontal the solution, the better fit credits are.
The more specific your solution, the more specific the pain points you’re solving, the more specific the outcomes that you’re generating, the easier it is to price on a consistent outcome and kind of, like, prove that out.
So, I totally agree with you on that.
I’m sorry to keep agreeing with you, Mark, but you’re right.
Mark Stiving
Just tell my wife, okay?
Rob Litterst
Sure thing.
Mark Stiving
So there’s a, there’s one common pricing model that seems to be really popping up, and I just wanna hear you talk about it for a minute, and that is, uh, we’ll call it a hybrid model, and it’s really a I’m gonna pay a subscription, whether it’s per seat or per agent or per something, and then I’m gonna pay for usage on top of that once I exceed some number.
And so, are you pushing that model? What do you think of that model?
Rob Litterst
So I think, like, I think it makes sense.
I think, like, the situation that a lot of these companies are in is they have this seat-based model and they…
So first and foremost, from like a data perspective within pricing SaaS, we’re seeing very few companies totally get rid of their seat-based model.
And I think a lot of it comes back to what we were talking about earlier, where customers like seats and, like, they don’t want to go from seats to fully credits or fully consumption or whatever that is.
They generally like seats, and they can predict seats, and they kinda understand the model.
So I think a lot of companies are basically tacking on, like you said, kind of like a credit layer on top of their seat-based license.
I don’t really have a problem with it. Like, I think I like the idea of having kind of like base level credit allowances within your existing seats because it makes it really easy for companies to test out your AI features and, like, see what works, see what they wanna use, and then ultimately buy more over time.
I think, like, I don’t know if that’s like where everything will land down the road.
I think like it can be kind of annoying to like have to buy credit packs and have to like continuous– Like, like another thing that we’ve seen is the longer companies offer credits, the more likely they are to offer like rollovers and top-ups and like basically have like a lot of flexibility around their credit currency.
And I think it’s just literally… And like I’ve talked to a few companies who have offered credits for a while, and I think it’s literally just customers complaining and they’re like, “All right, we have to do this or we’re just gonna keep on getting complaints.”
And so I think either companies are going to Like move towards flexibility with their credit models.
Or there could be something else.
Like, I know Agent Force has, like, a really flexible model that I’m not sure I totally understand, but, like, I think you can– you basically have, like, a lump fee where, like, you can allocate some budget to seats, some budget to agents, some budget to credits.
Like, there’s just a lot of flexibility in there, and I don’t know. I’ve yet to, like, really talk to anybody about that and whether or not they really like it.
But this model right now, where you’re layering credits on top of kind of like licenses and kind of like using that to, for expansion, I think makes a lot of sense. Like, I think it kinda keeps current customer relationships intact.
It’s, like, not a huge… You know, it’s not– it doesn’t feel, like, super disruptive to customers who have been paying you a certain way for a long time.
Like a company like Figma. Like, Figma’s been doing this, and, like, they have this kinda crazy seat-based model where they have, like, a bunch of different seats and then they have, like, layers of AI that you can add on top of that, and it seems to be working really well for them.
And, like, I think one thing that’s interesting about the credit expansion is I generally think, like, the credit expansion is really only happening, like, in the enterprise.
Like, I don’t think there are a lot of, like, SMB customers that are, like, paying a ton for, like, extra credit packs and stuff like that.
Like, that’s not the sense that I get. And, like, from Figma’s earnings, it seemed like the companies who are really, like, just flying through AI usage are all their bigger customers.
And I think at that level, it probably just makes sense for them to eventually have, like, an enterprise agreement, right?
Where, like, they just, like, talk to them and, like, about their renewal, about, like, “Hey, we need to lock you in at, like, this credit tier or whatever because you’re blowing through your limits.”
So yeah, I think I… That was a long-winded way of saying that I generally like the model. I think it’s a good model for where we’re at right now with AI.
Mark Stiving
Yeah, it feels like it helps both the buyer and the seller at this point in time-
Rob Litterst
Yeah …
Mark Stiving
…for a model like that. So let me tell you how I think about some of these, and I don’t think I’ve gotten any of my clients to agree with this thinking yet. Yeah. So it tells you it’s not that good.
But imagine that I’m selling just subscriptions, flat rates for a second.
Rob Litterst
Yep.
Mark Stiving
And as a company, as a seller, I think of that as insurance, meaning that I’ve got a whole bunch of people barely using it, and I’ve got a few people using it a ton, and yet everybody worries about the few people using it a ton. It’s like I’m losing money on these customers. I gotta stop it.
But as long as we’re making money overall, who cares?
Rob Litterst
Yeah.
Mark Stiving
Right?
Rob Litterst
Yeah. I think that makes sense. Yeah.
Mark Stiving
But I can’t get CFOs to agree with me.
Rob Litterst
It’s funny, the insurance analogy, have you been following this thread of, like, AI native services at all?
And, like, this kinda to- Okay. So there’s, there’s this guy, Jake Saper, who is a venture capitalist at this firm called Emergence, and they’ve been kinda touting this narrative of, like, AI native services companies where basically it’s like- It’s kind of like how people used to say like services as software. Like basically like that same kind of idea.
But ultimately, like what I think he’s driving at is just like these are services companies who– His thesis is basically saying that like some SaaS companies should actually pivot to like services companies where they’re actually doing a job for their customers, and then they can charge for the outcome that they’re providing, and their pricing will basically be kind of like an insurance policy.
It’s like, “We will help you resolve all of your customer support tickets, whether we use an agent or we use humans.
Like that is like what we do. That is our job that we will do for you.”
And then you can charge a premium basically because you’re actually doing this for them.
And you, as like a services company, you’re able to do this with AI either faster, cheaper, or better than you could before.
And so like that’s kind of like the idea. But it’s funny, like your, the insurance policy analogy reminded me of that. I think I generally agree. Yeah.
Mark Stiving
It, it’s just, it makes sense to me. Yeah. Makes sense to me.
Let’s talk about outcome-based pricing. So this was the holy grail. Everybody talks about it, thinks it’s gonna be amazing, and yet there’s a handful of companies who actually get away with it.
Rob Litterst
Yeah.
Mark Stiving
Why?
Rob Litterst
So I think first of all, like you need to have… Like, you and your customer need to agree on what an outcome is. You need to be able to actually do it, right?
So like if you’re the vendor, it’s like you need to agree with your customers that, like this is the desired outcome. You need to build something that can actually do it.
You need to be able to prove that you did it.
So like there’s the whole attribution piece, and I think a lot of people like kind of think attribution is like the hardest challenge here because especially with like some outcomes, like once you get outside of like support tickets, like it’s just sometimes it’s hard to tell like how much of an impact like if you’ve ever gotten into the marketing world with like attribution and stuff like that, which I’m sure you have, like at some point or another, it…
Like attribution is such a like black box.
Mark Stiving
Yeah … before you want, can I give you my favorite example of attribution?
Rob Litterst
Yes.
Mark Stiving
Right? Yes. So as pricing people, we work really hard. We make pricing model changes, we make price level changes, we grow ASP in the company. We go to the CEO and say, “Hey, look, we grew the ASP,” and the VP of sales says, “No, no, no, no, no. We did that.”
Rob Litterst
Yep.
Mark Stiving
Right? Totally. Marketing goes, “No, no, no. We did that,” right?
Rob Litterst
Totally. Totally. Exactly. Everybody’s- So- … fighting for their bag. Exactly.
Mark Stiving
Right. It’s the, that’s the attribution problem right there.
Rob Litterst
100%. Right? 100%.
Mark Stiving
Okay. I interrupted you.
Rob Litterst
And then, but then- Go ahead … even if you crack attribution, then your customers need to agree to pay for outcomes, and that’s the last piece too that we talked about earlier is like your customers need to be down to pay for outcomes.
And I think like there are just so many stumbling blocks across those four things, and there are probably like many other things that kind of stand in the way.
To your point earlier, like I think the companies who are selling a solution that does the same thing over and over, like trying to think of a good example besides Intercom and Fin. But like there,
Mark Stiving
The other one I use often is Charge Flow for chargebacks.
Rob Litterst
Totally. Totally That’s a great example. And like, I don’t know what they charge, but I, I would imagine they charge like a percentage of what was- Yep … saved or something like that.
Yeah.
So- Yep … like totally. And I, I think that makes total sense. I think like Intercom is dovetailing into sales now, and so like they’re helping you generate leads or qualified leads and like helping you set up like sales meetings, which like that makes sense.
So like that, that I think is an interesting one ’cause it’s like you could pay a certain amount per like sales meeting or per lead, but I, I feel like as a vendor, there’s a world where you’re like way undercharging.
Like if you’re actually helping them generate like a lead for an enterprise contract, like there could be a pretty big delta between the value that they’re getting and what you’re actually collecting.
So yeah, I think like a lot of those things are standing in the way. Probably the biggest one is just like buyers want…
Like not really being ready. Like that, that to me is kind of like the big one, is I don’t think buyers are really ready for outcome-based pricing right now.
Mark Stiving
Yeah. You know the other one I f- I started thinking about today, and I’m not 100% sure that I, that I’m there yet, but that is who’s taking the risk?
Rob Litterst
Yeah.
Mark Stiving
Right? And so if you think about Intercom, right, they’re taking the risk that says are we gonna be able to solve this or not, and if we can’t, we don’t get paid for it.
Rob Litterst
Mm-hmm.
Mark Stiving
Yeah. So. And by the way, my other favorite example of outcome-based pricing is contingency fees for lawyers.
Rob Litterst
Yes.
Mark Stiving
Right.
Rob Litterst
I think lawyers have generally nailed any… Like I think they’ve been on top of pricing for a long time. Mm-hmm.
Like I, I’m talking to a few lawyers about things right now, and yeah, they have pricing nailed in a way that, that I do not for myself and yeah.
Mark Stiving
Yeah, some of them do. Some of them do. Yeah, so this whole outcome thing is really fascinating to me because, you know, I got into a LinkedIn discussion the other day about what the definition of an outcome price was.
Rob Litterst
Yeah.
Mark Stiving
Right? And it’s really fascinating. And the example that I came up with that I really enjoy is imagine that you’re Xerox charging per printed page.
Rob Litterst
Yeah.
Mark Stiving
Right? So that’s certainly not what we would consider outcome for me, but if I were selling it to a print shop, that is precisely outcome.
Rob Litterst
Right.
Mark Stiving
Right?
Rob Litterst
Yeah. It’s funny, somebody asked me, ’cause I was talking about outcome-based pricing. I think I might have posted something a little while back, and I think it was Kareem from Zoom, who’s on the pricing team at Zoom. He was like, “Would you call this an outcome or an output?”
And I think that gets really blurry too, ’cause like an output, like if an output is like a completed workflow or something, like couldn’t you also call that an outcome?
Like it’s, it’s one of those things where it just like, it gets like very… Like you get into the weeds a little bit with just like how you’re even explaining these things.
Mark Stiving
Yeah.
Rob Litterst
But yeah. That’s interesting.
Mark Stiving
So the, the definition I’m leaning towards is, is exactly what you just said, the difference between an output and an outcome.
Rob Litterst
Mm-hmm.
Mark Stiving
An outcome is an output-
Rob Litterst
Mm-hmm …
Mark Stiving
but it’s closer to what the customer actually cares about.
Rob Litterst
I like that.
Mark Stiving
Right? It’s either a KPI- Yeah … that drives profit or a KPI that they’re really measuring today. Yeah. Something they really care about.
Rob Litterst:
I like that a lot. Yeah, that makes, that makes sense.
Mark Stiving
So, but, you know, these things are changing constantly.
I, you know, what I write this week is gonna be because I thought something different than what I thought last week.
Rob Litterst
Yeah. Yeah, 100%. That’s where I’m at right now is, like, I don’t know what I’m gonna write about until I see the news for the current week, and things change so fast that it’s just like an ever, ever-evolving thing.
Mark Stiving:
Rob, I’m having a blast, but we’re gonna run out of time.
Let me ask you the final question, and, uh, we’ll see if this prompts me to ask you even more. What’s one piece of pricing advice you’d give our listeners that you think could have a big impact on their business?
Rob Litterst
So, like, I think it still pays off and, like, makes sense to just, like, know the fundamentals of pricing and packaging, and just, like, to understand those concepts.
I think, like, part of me would recommend, like, going back and, like, reading all the books that are worth reading on that front and, like, really getting familiar with that stuff.
The other side of me thinks, like, I’ve been thinking a lot about, like, the inference providers and this idea of, like, routing underneath the hood and, like, being able to pick the right model for the right job.
And, like, I don’t even know if pricing…
Like, within a given company, like, I don’t necessarily know that those would be, like, the pricing folks who are super focused on that, more so, like, the product folks.
But I think those worlds are blending.
And I think that’s a really interesting place to focus, too. Like, if you really know where the models are going and where they’re capable and what they can do I think that can have a huge impact on your end product, like how much profit you’re actually driving from your product.
Like, you could have two different companies who are doing the exact same thing, and one could just be way better at routing to different models and have, like, a way better grip on, like, what the models are capable of, and they could make way more profit for that same workflow than their competitor just because of how, how they understand, like, the underlying models and how to route those and how to figure that whole thing out.
And so, like, that’s another thing that I’ve been thinking about a lot that’s not so much pricing, but more of, like, product underneath the hood.
Yeah. And I think, like, I think that’s a really, really good place to concentrate, and it’s like the OpenRouter acquisition from Stripe, I think, like, that didn’t really surprise…
Like, that makes a lot of sense to me, like, now looking at kinda like what they’re, what they’re doing there with, with OpenRouter and Metronome and this world of, like, crazy usage-based pricing where, like, the tokens are gonna be kinda like the underlying currency.
So yeah, two different answers, but those would be kinda like the two ways that I would probably push somebody.
Mark Stiving
You know, it’s funny because when I read a lot of what you write, a lot of what Auric writes, it often goes back to, well, what’s the segmentation?
What’s the packaging, right? Who are you selling this to and- Yeah … can you resonate with them?
And so most people don’t get the pricing fundamentals, and here we are trying to deal with the nuances.
Rob Litterst
Right. No, when I… It’s so true. And when I was at ProfitWell, we had like a… ProfitWell was a great place to learn.
I would say we didn’t have, like, the most sophisticated consulting offering, but, you know, it was, it was kind of like a productized consulting experience that allowed you to train people up pretty quickly on it, and, like, charge a lower fee than most consultants, and kinda churn through engagements and deliver, like, pretty solid recommendations.
But we would always start with a buyer persona sprint.
So we had this sequence, so it’d go like buyer persona, pricing structure, which is where we’d dig into, like, pricing metrics and stuff like that, packaging, where we would dig into, like, how to actually package a product, and then price points, which would be, like, the final cherry on top of, like, h- how…like, where should you actually price these plans.
And I think without the persona sprint, nothing else makes sense. Like, you need to understand who the people are that land in each of those tiers and, like, how your buyers are different.
So I completely agree with you. I think, like, segmentation is, like, the fundamental first job of, like, understanding, like, how to price and package.
Mark Stiving
Rob, this has been an absolute blast. Thank you so much for all your time.
Rob Litterst
Thanks for having me.
Mark Stiving
If anybody wants to contact you, how can they do that?
Rob Litterst
The easiest way is probably on LinkedIn. I’m just Rob Litterst on LinkedIn. It’s L-I-T-T-E-R-S-T. And I post way too much, so sorry if it becomes a bombardment, but yeah, would love to connect on there.
Mark Stiving
It’s, uh, well worth reading.
Rob Litterst
Thank you.
Mark Stiving
Excellent. And to our listeners, if you enjoyed this, would you please leave us a rating and a review? And if you have any questions about this podcast or about pricing in general, feel free to email me, [email protected].
Now, go make an impact.
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