In a recent YouTube video titled "Your Customers Need This For Credit Based Pricing" from the channel "AI, SaaS & Agentic Pricing with Monetizely," pricing expert Ajit Pal Ghuman provides critical insights into why many token or credit-based pricing models fail and how to make them successful. This concise but powerful video breaks down the essential strategy needed to translate abstract pricing units into value customers can understand.
The Problem With Token-Based Pricing
Token or credit-based pricing has become increasingly popular, especially for generative AI and content creation tools. However, there's a fundamental disconnect between how companies think about these pricing units and how customers perceive them.
As Ghuman explains in the video, "What is token or credit based pricing? It's just different words for the same thing." Companies use this pricing model when traditional metrics like monthly active users don't accurately reflect the value customers receive, particularly for tools that produce varied outputs used in many different contexts.
The challenge emerges because, as the video pointedly states: "People don't think tokens, people don't think credits." This cognitive gap is where many otherwise solid pricing strategies collapse.
Anchoring Credits to Tangible Value
The key insight from the video is that successful token-based pricing requires anchoring credits to definable pieces of value that customers already understand.
"When it comes to credit and token based pricing, the one thing you really need to figure out how to do is to anchor the credit to a definable piece of value that you produce," Ghuman emphasizes.
For example, if your product analyzes legal documents, you might say that reviewing an NDA costs two credits. This works because NDAs are familiar reference points that allow customers to make mental calculations about other documents:
"NDAs are very common business documents that people can then think, okay, if an NDA is this much, a full contract is maybe four X of an NDA. People will make heuristic calculation…"
Real-World Examples of Effective Credit Anchoring
For different industries, different anchors make sense:
For Video Creation Tools:
"What about video creation? What is the average length of a YouTube video? You say for every five minute video, it's going to be one token, and for every shot, it's going to be maybe 0.2 tokens, something like that."
By providing these references, you enable customers to calculate what they'll actually spend based on their normal workflows. A video producer quickly thinks: "I make 10 videos per month, each about 5 minutes long, so that's roughly 10 tokens…"
For Document Processing:
Using the NDA example mentioned earlier creates a baseline that helps customers understand the relative cost of processing various document types.
Why Calculators and Estimates Matter
The video strongly recommends providing estimates and calculators on pricing pages to help customers translate credits into their real-world usage:
"Provide these estimates, even though you are charging on a token or credit basis, people will think, okay, this is how much it's going to cost me for one video. I produce so many videos per month. This is how I will justify the cost."
This approach helps customers understand what they're actually buying and how it fits into their workflow.
The Consequences of Getting It Wrong
Failing to provide these reference points doesn't mean your pricing metric is wrong—it means customers can't understand how it applies to them:
"If you generally do not do this and you do not actually step into the shoes of the buyer, you will find that the change to credit or token based pricing will fall flat, not because it was the wrong metric, but because the customer couldn't think about what it meant for their workflow."
Key Takeaways for Implementing Token-Based Pricing
- Anchor to familiar units of work: Choose reference points your customers already understand
- Provide clear estimates: Help customers translate tokens into real usage
- Add calculators to your pricing page: Let customers model their specific usage
- Maintain consistency: Use the same reference units across all pricing plans
- Think like your customer: Remember that people think in units of work, not abstract credits
As Ghuman concludes in the video: "Always pick an anchor unit of work around a credit or token and provide that reference right up front and provide that across all of your different plans so that the customers can easily compare and contrast because nobody thinks in credits, but they do things in units of work that are repeatable."
By following this approach, you transform abstract token-based pricing into a model that clearly communicates value to customers, improving both conversion rates and customer satisfaction with your pricing strategy.