In today’s Monetization Memo: getting smarter about contract terms, why heavy discounting is a sign of bigger problems, and how to get started with AI pricing.
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🚀 Quick Wins: Getting Creative with Contracts
Poll five revenue leaders and you'll get five different opinions on contract lengths. Some see multi-year deals as unnecessary discounts with limited churn benefit. Others push hard to lock customers into long-term commitments.
At the core of the discounting for term debate is a simple challenge:
The customers most willing to sign longer contracts are often the ones who need the discount least.
They trust the product, have seen value, and would likely renew or expand without extra incentive. Yet we often hand them discounts they didn’t need to close.
In a perfect world, you'd reserve discounts for customers who are uncertain and need extra confidence — not for those already sold.
A few companies are getting more creative with term:
Chili Piper only offers month-to-month contracts to new customers. Logical — buyers still validating the product and not sure it’s going to work. Locking into a full-year contract too early creates internal risk for the champion if things go sideways.
Circle (community platform) takes a different approach: certain premium services are only available to annual customers. Month-to-month buyers get basic access, but not white-glove support.
Moral of the story: You don’t have to apply the same contract terms or discount logic across the board. Use contract structure as a lever — keep early-stage deals flexible, reserve discounts for the customers who truly need them, and design annual perks that reward commitment.
🏆 Case Study: Deep Discounting Is a Symptom, Not a Solution
The product was nearing $100M in ARR with a strong value proposition. But the sales team was discounting like there was no tomorrow — 50–60% off wasn’t uncommon. The familiar justification? “We just need to close the deal.”
When discretionary discounts regularly exceed 40%, it’s rarely about price alone. It usually means the sales team doesn’t believe in the pricing model itself.
That’s exactly what we found.
👎 The tiered packaging made no sense to reps or customers — a legacy structure built by a previous product marketer, with zero customer input.
👎 The “Good / Better / Best” options were so unclear that sales often skipped them entirely.
👎 Worse, they were chasing small, off-ICP customers who didn’t value the full product and couldn’t afford it.
Pricing didn’t match customer value, and reps knew it.
Instead of patching it with steeper discounts, we rebuilt the model from scratch — aligning packaging to real buyer needs, targeting the right segments, and getting full sales buy-in. The result? Discounts in the new model dropped to a standard 10–15% range.
If your team is discounting hard and often, it’s not just a pricing problem - it’s a model problem.
🔮 AI Corner: How to Price in a Fast-Moving Market
The AI landscape is changing fast — and that makes pricing tricky.
Great pricing requires a clear understanding of customer value. But in AI, many customers don’t yet know how they’ll use it, let alone how much they’d pay for it. That makes early pricing decisions especially fragile.
Even the biggest players are still figuring it out.
Salesforce initially priced AI per conversation, then pivoted to a credit-based system tied to actions taken. The market is fluid, the tech is evolving, and every boardroom is asking the same thing: “What’s our AI plan — and how are we monetizing it?”
No one wants to be the team that slows down AI adoption.
Here are the best practices for pricing AI in 2025 that will keep you agile and adoption-focused:
1. Start with small usage allotments
Until you understand cost curves and customer use cases, avoid unlimited plans. Most customers are still experimenting, so start small and avoid over-delivering early.
2. Follow sound packaging logic
If AI enhances existing features → bundle it in
If AI solves a new problem → make it an add-on
If you're unsure → start safe with an add-on you can always bundle later
3. Choose the right metric
Your pricing metric matters more than ever:
If AI replaces the user, use a usage-based metric
If AI supports the user, stick with seat-based pricing
Align it with your product’s value metric wherever possible.
4. Plan for lower margins — for now
AI features often run at 50–60% gross margin due to inference costs. Optimism is high that this will improve with foundation model competition and scale — but build in margin buffers today.
5. Focus on adoption, not extraction
Most customers are still “AI tourists” — testing features, not building workflows. Pricing should encourage experimentation. Start with low-friction bundles, and evolve pricing as stickiness grows.
🔥 In Case You Missed It…
Monetization News Roundup
Salesforce is raising prices across multiple core products
AI bundles will replace previous AI add-ons.
Lesson: Bundling new capabilities (like AI) can justify price hikes, but must be backed by value and communicated clearly.
Atlassian is changing how it charges cloud customers.
Monthly billing will now reflect the peak number of active users, not just who’s left at month-end.
Lesson: Usage-aligned billing (even within seat pricing) is a smart way to capture mid-cycle value, but transparency is critical.
🏆 Best Reads
Kyle Poyar – The State of B2B Monetization in 2025
An in-depth analysis of 240 SaaS and AI companies reveals:
Flat-rate and per-seat pricing are declining fast.
Hybrid pricing (subscription + usage) jumped from 27% to 41% in just one year.
While only ~5% of companies have adopted outcome-based pricing today, nearly 40% expect to experiment with it in the near future.
Key Takeaway: As AI agents do more of the work, pricing based on the outcomes feels natural and powerful. It builds trust, aligns incentives, and sends a clear message: “We only win when you do.” The future may belong to those who solve the CAMP challenge: Consistency, Attribution, Measurability, and Predictability.
🗓️ Events to Catch
Pricing I/O - We’re Roasting Your Pricing Page LIVE (FREE)
🗓️ July 8, 2025 at 11:00 AM EDT (Virtual)
A brutally honest teardown of real SaaS pricing pages hosted by Pricing I/O’s Marcos Rivera (CEO) and Emily Sanz (Senior Pricing Strategist). Submit your pricing page or just learn from others’ mistakes. Limited to 200 attendees.
Register here
ProductCon – Virtual Product Conference (FREE)
🗓️ August 6, 2025 (Virtual)
Hosted by Product School, this event gathers 2,000+ product and GTM leaders to discuss monetization, PLG tactics, and pricing strategy.
Register here
🔉 Recommended Listens
🎧 Monetizing SaaS – “Kevin Grüneberg on leading billing engineering at Supabase” | Host: Fynn Glover
🎧 saas.unbound – “How to Change SaaS Pricing and Keep Your Customers with Tom Benattar” | Host: Anna Nadeina
“The bitterness of low quality is remembered long after the sweetness of low price is forgotten.” - Benjamin Franklin
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Monetization Memo
