Why AI Is Changing The Way We Price

Time/effort-based pricing has become the norm across professional services. We latched on to it because it’s easy. It can be quantified without even the smallest scratching of heads, particularly with industry standards setting the pricing bar. That’s why it has remained the norm for so very many years. Artificial intelligence (AI), however, is necessitating change. As working practices are evolving across the board, AI is disrupting almost everything that we do, which for a whole range of sectors means that pricing by the hour is no longer fit for purpose.

The Problem Of Pricing By The Hour

With professional services, the parameters for pricing are shifting. AI means that core processes – whether research and data analysis or more creative practices – are taking less time, so when you’re charging by the hour that time efficiency has to be factored in. If the pricing model isn’t changed, the result will be that firms will be charging less money for improved service, which simply doesn’t make sense. So, what’s the alternative?

Enter Deliverable-Based Pricing

Deliverable-based pricing – also known as asset or outcome-based pricing – enables businesses to create a pricing model that reflects the true value of their services without reference to time or effort, and regardless of the input or impact of AI.

With prices built around definable outcomes, the idea is a simple one – businesses can create a menu of services upon which they can build comprehensive quotes tailored to the specific needs of individual clients.

So, rather than billing clients for the time that goes into any given project, billing can be based upon a definable outcome that carries clear, understandable value for your clients, bringing clarity and transparency to the overall process. It also holds the potential to be used as a marketing tool, simplifying your ability to pitch for a job in clearly definable terms, rather than just the time that project completion will take.

All of this raises the question of why more businesses aren’t already using deliverable-based pricing.

Making Time To Change

Earlier this year, when the Simon Kucher Institute wrote about the ‘AI-pocalypse’, it was stated that 0% of firms have a plan in place for AI’s impact on their revenue model. The reasons for this are undoubtedly manifold, ranging from an ‘if it ain’t broke…’ mindset to simply not having enough time to catch up with the rate at which AI has exploded.

For some, there will be the latent fear of changing a process that is so fundamental to their business, not to mention the time, the effort, and the complications such a move would engender. However, the reality is that changing your pricing structure is probably a lot more painless than you imagine. It’s also an inevitable necessity if you wish your business to thrive.

The basic premise is to create a cost-plus framework model for each of the services your business offers. There are tools available to support this, such as configure, price and quote (CPQ) software, but the primary requirement is a clear understanding of your business, your offerings, the effort that goes into each service, and the value they deliver. If you have this available, the transition will be far simpler to manage for both you and your customers

Time/effort-based pricing has had its day. It served its purpose up to a point, but it is no longer fit for many businesses. AI is slashing the time that a huge number of business processes take, and this is an amazing thing, it can help your business to do so much more. However, it also means that for a huge swathe of industries, a change of pricing models is essential. The businesses that make that change early, while they have time to figure out the quirks and iron out the kinks will be the winners in this process. The losers will be the ones who are left behind, forced into making the change in a pressurised environment, meaning rushed decisions and potential mistakes, in a bid to catch up.

Tracey Shirtcliff

Founder and CEO of SCOPE Better, the Pricing Platform designed for professional services.