AI Pricing Framework
Tier-based guidance for realistic proposals and cost estimates
Why Realistic Pricing Matters
Under-quoting to win deals creates a lose-lose situation. Customers face scope creep and budget overruns, while vendors struggle with unprofitable projects and damaged relationships.
❌ Consequences of Under-Pricing
- •Scope creep and change orders
- •Customer dissatisfaction
- •Project delays and failures
- •Unprofitable delivery
✅ Benefits of Realistic Pricing
- •Aligned expectations from day one
- •Proper resource allocation
- •Higher project success rates
- •Better customer relationships
This framework provides tier-based cost ranges based on actual implementation complexity.
Pro Tips for Maximum Value
🎯 When to Use This Tool
Use this before creating proposals and during internal proposal reviews. Reference this framework when sales pushes for discounts - these cost ranges represent what success actually requires. Cutting price means cutting scope or quality.
✅ Best Practices
- •Print and share with sales team - Educate your sales team on why Tier 3 can't be delivered for Tier 1 pricing
- •Include hidden costs explicitly - Break out data prep, infrastructure, and change management separately in proposals
- •Use ranges, not point estimates - "$150K-$500K" is honest. "$325K" is false precision and invites negotiation.
- •Explain TCO (Total Cost of Ownership) - Show year 1 + ongoing costs together so customer budgets accurately
🚨 Common Mistakes to Avoid
- ✗Matching competitor pricing without understanding their tier or quality (race to the bottom)
- ✗Under-pricing to "land and expand" (unprofitable projects kill your margin and reputation)
- ✗Forgetting Year 2+ maintenance costs (customer feels blindsided by renewal pricing)
🔗 Combine with Other Tools
Use Qualification Scorecard to ensure customer has budget → Reference this framework when creating SOW pricing → Use ROI Calculator to justify the investment to customer's CFO.
Cost Ranges by Tier
Tier 0
Rules-Based
Tier 1
Statistical
Tier 2
Machine Learning
Tier 3
Deep Learning
Tier 4
Generative AI
Tier 5
Research
| Tier | POC/Pilot | Production (Year 1) | Typical Timeline |
|---|---|---|---|
| Tier 0 Rules-Based | $10K - $30K | $50K - $150K | 2-4 months |
| Tier 1 Statistical | $20K - $75K | $100K - $300K | 3-6 months |
| Tier 2 Machine Learning | $30K - $100K | $150K - $500K | 6-12 months |
| Tier 3 Deep Learning | $75K - $250K | $300K - $1M+ | 9-18 months |
| Tier 4 Generative AI | $50K - $200K | $200K - $800K | 6-12 months |
| Tier 5 Research | $100K - $500K | $500K - $5M+ | 12-36+ months |
💡 Important Notes:
- • Ranges assume customer has appropriate data readiness and team capabilities
- • Production costs include implementation, training, integration, and first year support
- • Ongoing costs (years 2+) typically 15-25% of year 1 for maintenance and support
- • Custom development, integration complexity, and scale can significantly impact costs
What's Included in These Costs?
POC/Pilot Phase
Production Implementation
⚠️ Hidden Costs to Discuss
Make sure your proposal accounts for these often-overlooked costs:
Data Preparation
Cleaning, labeling, and structuring data can add 20-40% to project costs if customer data isn't ready.
Infrastructure
Cloud costs, GPU instances, or on-prem hardware can significantly impact TCO, especially for Tier 3+.
Change Management
User adoption, training, and process changes require dedicated resources that are often underestimated.
Ongoing Maintenance
Model retraining, performance monitoring, and support typically cost 15-25% annually after year 1.
Recommended Proposal Structure
Structure your proposals to set clear expectations and reduce risk:
Phase 1: Discovery & Planning (10-15% of budget)
Data assessment, technical architecture design, success criteria definition, and detailed project plan.
Phase 2: POC/Pilot (20-30% of budget)
Build and test with limited scope to validate technical approach and business value before full commitment.
Phase 3: Production Build (40-50% of budget)
Full-scale development, integration with enterprise systems, security hardening, and performance optimization.
Phase 4: Deployment & Training (15-20% of budget)
User training, documentation, change management, and production rollout with monitoring.
Phase 5: Support & Optimization (Ongoing)
Typically 15-25% of year 1 cost annually for maintenance, model retraining, and technical support.
💡 Pro Tip: Include clear exit criteria for each phase so customers can pause or adjust if expectations aren't met.
Use This Framework
Reference this framework when creating proposals to ensure realistic pricing: