Buyer Insight: The Case for Token-Based Pricing

0:00The Case for Token-Based Pricing

0:11Hello, welcome to the Impact Pricing Buyer Insight Series, where we give you quick but powerful tips on how to understand, package, and communicate your value to maximize your profitability. Today, we're going to dive into a blog Mark originally published on June 15th. Let's get started. Mark has spent decades arguing against cost plus pricing, and token-based pricing is simply cost plus. So when he says token-based pricing makes sense right now, he really wants you to understand how much it pains him to do that. But here's the argument. Value-based pricing requires three things. One, the seller needs to know their costs.

0:52Two, the seller needs to know what the solution is worth to the buyer. And three, the buyer needs to believe that value is real. When any of those are missing, value-based pricing isn't principled. It's a guess dressed up as a strategy. With AI agents today, really all three are missing. Sellers don't yet have a clear handle on their costs. Inference costs are falling fast and unpredictably. The compute required to complete a task varies widely depending on complexity. A seller who commits to a fixed price before understanding their cost structure is taking an enormous financial risk. Token-based pricing solves that problem directly.

1:35It ties revenue to consumption, which ties revenue to cost. Margins are thin, but the seller isn't flying blind. Think about hourly billing. A contractor charging by the hour on a novel project isn't being lazy. They're being honest about cost uncertainty. They don't know how long it will take, so they price by the unit of input they can measure. Token-based pricing works the same way. It's the honest answer to, we don't know what this costs to deliver yet. The value side is equally uncertain. Agents are being deployed to do things that haven't been done before in ways that haven't been measured before.

2:12The buyer genuinely doesn't know what a successful outcome is worth yet. And a seller who can't point to a proven outcome can't credibly name a value-based price. Both sides are still figuring it out. There's another dynamic worth naming. Charging by the hour, or by the token, transfers risk from the seller to the buyer. The buyer absorbs the uncertainty of not knowing how much they'll spend or what they'll get. Sellers make the risk acceptable by keeping margins low. It's not generosity. It's the price of asking the buyer to carry the uncertainty while the market figures itself out. This doesn't mean token-based pricing is the right long-term answer everywhere.

2:53LLMs selling platform access may reasonably stay token-based for a long time because the use cases are so varied that value is genuinely hard to pin down at the platform level. But that doesn't mean LLM companies can't also carve out high-value niches. specific applications where outcomes are measurable and value is clear, and price those based on value while keeping the platform token-based. For agents, the timeline is shorter. Agents are built to accomplish specific tasks, which mean outputs become visible faster. And once outputs are visible, value isn't far behind. The right pricing metric will move towards something buyers understand in their own business terms, not tokens consumed, but decisions automated or errors caught, hours recovered, revenue influenced.

3:43Token-based pricing may be the right place to start. It should not be the place you stay. If you want help thinking through value to your buyer, let us know. It's our superpower. Now, go make an impact.

4:06Thank you.