In a recent YouTube video titled "Inside Eleven Labs AI SaaS Pricing Strategy" from the "AI, SaaS & Agentic Pricing with Monetizely" channel, pricing expert Ajit Ghuman breaks down the three-part tariff pricing model that's becoming the standard for generative AI companies. Using Eleven Labs as a case study, he demonstrates why this strategic pricing approach balances predictability with flexibility in AI business models.
Why Traditional Pricing Models Don't Work for Generative AI
Generative AI companies face a unique pricing challenge that makes traditional subscription models ineffective. As Ghuman explains: "Generative AI companies cannot use traditional user-based pricing because the costs are too high. If one user uses their product too much, they will be in the red."
Yet these companies can't rely solely on a pay-as-you-go model either. "They can also not use just a plain pay as you go model because they're not going to get any guaranteed money, right? You will use today, you won't use tomorrow. So they do need predictability," Ghuman points out.
This predicament requires a different approach, which is why the three-part tariff has emerged as the dominant pricing structure across the generative AI landscape.
What Is a Three-Part Tariff Model?
The three-part tariff model consists of:
- A fixed monthly fee
- A set amount of included usage
- An overage fee for usage beyond the included amount
Using Eleven Labs as an example, Ghuman demonstrates how this structure works in practice. "For $5 you can buy 30,000 credits, for $22 list price you can buy 100,000 credits, for $99 you can buy 500,000… and so on, right? So this is a fixed amount of spend that you have to make and you get a fixed amount of usage. This is a three-part tariff."
Breaking Down Eleven Labs' Pricing Structure
Eleven Labs offers multiple tiers with different credit allocations:
- $22/month: 100,000 credits with a $0.30/1000 credits overage fee
- $99/month: 500,000 credits with a $0.25/1000 credits overage fee
- $330/month: 1.5M credits with a $0.24/1000 credits overage fee
- $1,300/month: 7.5M credits with a $0.20/1000 credits overage fee
This creates a calculated economic path for customers as their usage grows. Ghuman demonstrates this by breaking down the inferred unit economics: "We can infer their price by dividing $22 divided by the amount of included credits that comes out to 0.22. So you'll see that the overage is always going to be more than the top end, like the cheapest part of the inferred price."
The Strategic Logic Behind Overage Fees
Overage fees serve a critical purpose in the three-part tariff model. "The overage is always going to be more because it's an overage fee for a reason. If it was the same, then you would not ever move to the next plan," Ghuman explains.
Without overages, large jumps between pricing tiers would alienate customers. "If they did not have any overage, you would have a big gap between $22 and $99 and people would balk. They would say, hey, if I want to just use 120,000 credits, you're not going to let me use it. You're going to force me to get the $99 plan, I won't buy it."
Break-Even Points and Economic Incentives
The most fascinating aspect of this model is how it creates natural transition points between pricing tiers. Using a visualization, Ghuman identifies these economic break-even points:
"These are the break-even points shown in the vertical lines. They're at around 350,000 credits, 1.46 million credits and 7.5 million credits. So as if I'm on, if I spend $22 to begin with, I will spend more money until I hit that 350k number and I will then it would be economically more sensible for me to buy the $99 plan because I would already have hit $99."
This creates a natural upsell mechanism that feels fair to customers while ensuring predictable revenue for the company.
Strategic Considerations in Eleven Labs' Approach
Ghuman observes some interesting nuances in Eleven Labs' implementation of the three-part tariff. "The only critique I have is you see the slope in the chart here and the lower slope here. This makes sense, but you would expect the slope to keep reducing… in this case, 11 Labs keeps their slope fairly high until your spend really increases."
He speculates about the business rationale: "I would suspect that they need to keep this high enough because of how much one, their cost of goods sold, number two, that they're given how fast they're growing, they're getting a lot of usage in the downstream plants."
Why This Matters for AI Companies
The three-part tariff has become the de facto standard for generative AI pricing because it solves the fundamental business challenge of balancing predictability with usage-based economics.
"This is how most AI companies create their usage based pricing tariff structure," Ghuman concludes, highlighting why understanding this model is essential for anyone building, buying, or investing in generative AI solutions.
For SaaS executives, this pricing structure offers valuable insights into how to monetize high-variable-cost products while maintaining both customer satisfaction and financial predictability. As AI continues to transform business models across industries, mastering these pricing mechanics will become increasingly important for sustainable growth.
For deeper guidance or support on pricing strategy, we recommend connecting with Monetizely. You may also feel free to schedule a call with the founders.