Pricing glossary

Plain definitions of the SaaS and AI pricing terms that come up in real pricing work, from value metrics to credit-based pricing, each with Potio's take.

A

AI Profit Matrix: The AI Profit Matrix is a two-by-two framework for AI unit economics, developed at Potio.

C

Credit-Based Pricing: Credit-based pricing is usage-based pricing paid up front.
Customer Value Chain: A customer value chain, in Potio's pricing method, is the sequence of steps a customer goes through from signing up to getting the result they bought the product for.

F

Feature Value Matrix: The Feature Value Matrix is a four-bucket method, developed at Potio, for deciding where each feature goes in a pricing structure.

G

Good-Better-Best: Good-better-best pricing is a packaging structure that groups features into three graded plans at rising prices, each aimed at a segment with different needs and willingness to pay.

H

Hybrid Pricing: Hybrid pricing combines a fixed charge, such as a platform fee or seats, with a variable charge based on usage, credits or outputs.

I

Inputs to Impact Chain: The inputs to impact chain is a five-step model from program evaluation that Potio uses to name pricing models by where they bill: inputs, activities, outputs, outcomes and impact.

O

Outcome-Based Pricing: Outcome-based pricing charges only when a measurable result lands in the customer's business, such as cash recovered or a fraud loss reimbursed.
Output-Based Pricing: Output-based pricing charges for a unit of work the software has completed, such as a resolved support ticket, a qualified lead or a drafted document.

P

Per-Seat Pricing: In per-seat pricing, the bill is a fixed amount for each person who has access to the software, usually per month or per year.
Price Increase: A price increase is raising what existing or new customers pay for the same product or plan.
Pricing Architecture: Pricing architecture is the full design of how a company charges, from what it sells up to the numbers on the price tag.
Pricing Density: Pricing density is how consistent the value of a value metric is from one unit to the next and from one customer to the next.
Pricing Model: A pricing model is the mechanism that decides how a customer's bill is calculated: what they pay for and how the amount changes as they use or grow.

U

Usage-Based Pricing: Usage-based pricing charges customers for what they actually consume, measured over a billing period and invoiced afterwards.

V

Value Metric: A value metric is the unit a company bills on, the thing that makes the invoice go up when a customer gets more of it.
Value Metric Filters: The value metric filters are Potio's three tests for choosing what to bill on: operational fit, customer perception and economic logic.
Value-Based Pricing: Value-based pricing sets the price from what the product is worth to the customer, measured against their next best alternative, rather than from what it costs to build or deliver.