00:00In the past two years, I've made over $2 million selling AI products and services ranging from $11,000 chatbots to $100,000 AI SaaS platforms
00:06And if there's one thing that I've learned along the way, it's that getting your pricing strategy right is key to turning those small initial wins into big wins down the line
00:15Today, I'm going to show you how to do it, even if you're just starting out as a beginner
00:17So, in this video, we'll be covering the fundamentals of pricing your AI products and services, the common mistakes beginners make, and the exact steps to go from offering free projects initially to landing profitable deals down the line
00:29We're going to be ripping through the slideshow here, which is going to be available as a..
00:32Free resource on my school community if you want to jump on there and grab it
00:34So, let's get started
00:36Firstly, who am I? If you're new to the channel and don't know who I am, my name is Liam Motley
00:39I'm the founder of Morningside AI and a number of other AI companies
00:42I started my AI journey in January of 2023
00:44I didn't have any formal education in AI or software development; I was all self-taught
00:49I started off with a YouTube channel, which you're watching right now
00:52That led me into AI consulting, which then led me to start my own AI automation agency, Morningside AI, and really discover that model as a whole
00:59Then I started my own education business, the AI Accelerator
01:01I've also developed my own SaaS that I built as well
01:03So, I've sold many AI products
01:06Basically, ranging from like $1,000 or $1,500 chatbots all the way up to $100,000 AI builds, which is the biggest project that I've ever taken on at Morning AI
01:14And more recently, over the past six months, my businesses collectively have done over a million dollars in revenue, which you can see here, and I put out on my newsletter
01:21So, some of you might have seen that
01:22But that's enough about me
01:24Let's get into it
01:25So, what are we going to be covering today? These are the topics
01:27I'm just going to jump straight into them now
01:28So, firstly, why does pricing matter? Why is it so important? Well, it's actually the foundation of your agency because we are running a business, and you need to charge a certain amount in order to make a profit
01:33Your price and the..
01:39The price that you charge needs to be more than the cost you incur to deliver that service— that's how we make a profit, and that's how a business works
01:44If you don't make a profit, you don't really have a business, although some big tech companies might say otherwise
01:49But for businesses that we want to run, you need to make a profit
01:52At a basic level, the pricing strategy you use determines how much profit you can make
01:55Secondly, our pricing shows our value, so the amount we're charging indicates how good our services are
02:01Essentially, the more we're charging clients and people in general see high prices as a proxy for value, so we assume that more expensive things are more valuable inherently
02:08Thirdly, it shapes your work
02:10And your life as an agency owner, for example, your pricing strategy determines if you're going to be taking on one big project every few months or lots of little ones in order to reach that revenue number you're chasing
02:19Also, we have things like retainers, so it really shapes the way your business operates on a day-to-day basis
02:23Finally, an effective pricing strategy is what will actually grow your business over time, ensuring you have enough profit to reinvest into the key parts of the business that need it, such as marketing, product, team, etc
02:32So, the main thing you need to understand when you're pricing your AI services and solutions is what I call the value formula
02:37This is a combination of your skills
02:39And your experience and those two added together is what determines your value and therefore how much you can charge for your solutions
02:45So, this is the frame that I want you to look through: okay, what skills do I have, and what experience do I have? Skills are your technical abilities, like building chatbots on Voiceflow, automating processes with Make.com, etc.—all the other stuff I teach on this channel
02:58Then, your experience is the actual practical wisdom gained from real projects and delivering that in the real world by actually taking your skills and applying them in real-world scenarios to build AI solutions for businesses or for yourself
03:07You gain a much deeper and richer understanding of what it actually takes to..
03:10Make a successful AI implementation in the real world, and the experience that you gain through delivering multiple projects—ideally in the same niche or within a similar area
03:19The experience you gain increases your value to the client by reducing the project risk because you've been through it before, and you see the pitfalls and potholes along the way
03:28You can speed up the implementation because you can go straight through and don't need to hit those potholes along the way
03:32Finally, you can better align the solutions with the business needs from your experience
03:37So, the more experience you gain, the more you can increase your value, and of course, the more skills you have, either
03:42You yourself or within your organization by hiring other people, so the skills and the experience are what go together to determine your value
03:48And so now that you understand this value formula, just hold that thought, we'll be back to it in a second
03:50Then we get into pricing basics
03:51So, we have products and services, and services are typically charged by time
03:55For example, you go to a legal professional, and you ask for legal services; they'll bill you by time, like how many hours it will take for them to do the work you need
04:05Whereas with products, it's done by perceived or real value
04:07So, if you sell me an iPhone or something, I'm not going to be looking at the number of hours it took you to build it
04:12There's a perceived value of that iPhone, of the value that I can get out of it, and that's what I'm willing to pay for
04:17So products and services are priced very differently, and this is important because if you're selling a product and you want to show value, you need to provide some data on how that value was created, at least in a business setting
04:27So, if I'm selling an AI solution to a business, they want to see, okay, well, if you're putting this website chatbot on my landing page, how many people are going to engage with it, how many people are going to provide their lead information, and based on my close rate, is that going to convert into closed deals, and how much revenue am I going to generate? So, what is the data that shows..
04:44That there is some value attached to this because if there's no data showing that someone’s going to use it, then you're kind of just taking a stab in the dark and making up numbers about the value that this product or that thing will be able to create for the business owner
04:55So, in order to prove or communicate value, you need data in most cases
04:58But when you're starting an AI automation agency as a beginner, you don't have any firsthand data or proof of results
05:04Therefore, starting out with the AI development services rather than trying to go for products immediately is best
05:09Services you can charge for are based on your time or the time of your developer, so you can start off with no-code and low-code tools and operate as an agency
05:17Where you offer your services, basically, we can build this thing
05:20We're going to calculate how much time it's going to take for us, and then we're going to give you a proposal or a quote based on those hours rather than on the product and value
05:28We’ll talk about that later
05:30So, getting onto your first project as a beginner with an AI automation agency, you'll either be self-delivering or delegating it to a developer
05:37I recommend that you start out by delivering it yourself if possible
05:39It gives you a chance to actually build that experience for yourself rather than relying entirely on other people
05:44It is not, uh, not a great fit for some people, but ideally, you start off with some straightforward..
05:49The easiest way to get your first client is by posting in your school community
05:54Just go there and post something like, "Hey, I know how to do this," or "This is what I've been building recently." Anyone interested in something similar? You'll be shocked at how much attention you receive and how easy it is to land your first client
06:01I've heard many stories like that in free communities
06:04 Anyway, you want to start with straightforward projects that you can deliver yourself using no-code and low-code tools, ideally, so you don't have any associated costs
06:11Because if you're delivering the work yourself, you can approach someone and say, "Hey, I'll work for you for free so I can build my experience," and then progress from there
06:16Valuable, and this ties back into the value formula that we mentioned earlier, where initially you have some skills
06:21Yes, you might spend a month or two learning different AI automation tools, but you have no experience, so that limits your value
06:26Therefore, you should be going into find these straightforward projects where you can offer your services for free in exchange for gaining experience, which in the long run will make you much more valuable
06:35So start by offering some straightforward projects you can deliver yourself using no-code and low-code tools, as ideal, so that you don't have any costs
06:41Because you don't have any costs, you're not needing to take money from the client to at least stay at break-even
06:45So do your first..
06:48Try to do a few projects for free if possible, if you are self-delivering, to build your experience and become more valuable
06:51However, if you must hire and you're one of those people who just refuses to do a bit of tinkering yourself and gain some hands-on experience, then you should be offering your services at cost, in my experience and opinion
07:02Since you don't have any experience delivering these kinds of projects, it's a bit rich to go to clients and say, "Hey, look, I want you to pay me to learn on your business," which is basically what you're saying
07:11So, it does depend on your situation
07:12If you bring on a developer who has a ton of experience, then technically, that experience benefits your entire organization
07:17Goes up, and the skills also, and therefore you become a little bit more valuable
07:21But as a rule of thumb, when you are getting started, even if you're delegating and hiring a developer, I recommend that you offer your services at cost just to take the pressure off your back
07:28Also, communicate that clearly with your first client or a couple of clients, saying, "Hey, look, here's what we've built in the past or here's what we've built for ourselves," just any kind of proof you can get to show that you know what you're talking about and that there's a reasonable likelihood of you actually delivering this
07:40For you as a beginner, by coming in and offering your services at cost and being like, "Hey, I have my developer, and I'm willing to do this." A deal for you at cost because I value your testimonial more than the money this would make me
07:49A really key point here at the end is that by offering clients projects at cost, they will be more lenient with you if things fall short of your expectations
07:55As a beginner delivering your first few projects, this is highly likely because you sell them the dream just to get the deal over the line, and unfortunately, you realize it's a lot more difficult to deliver than you expected
08:06So, it's completely normal, but the issue is exacerbated if you've charged them a whole bunch of money and are trying to pocket a few thousand dollars starting out
08:14Rushing to make money in this way can cause problems
08:15Trying to skip this learning phase and going straight to selling and making as much money as you can out of this AI space is really one of the biggest issues that I'm seeing
08:22Beginners are approaching this
08:23I was on my free community Q&A in the school community this morning, and there was this guy who came up on stage and said he's going to be selling gems, this, this, and this
08:30I asked him, "What have you done? What are your baby steps you've taken to get to this point of selling this big, expensive package to them?" He said, "Oh well, I've just started
08:38How hard can it be?" But if you're a beginner, just take baby steps and focus on learning before earning, because if you try to jump straight to the earning part..
08:46You're just going to get chewed up and spat out by this AI space, and I promise you that, so take it slow and zoom out, seeing this as a long-term process where you need to build your skills and expertise by doing regular deliveries, even if that means taking less money up front, so that you can make more money later on
09:00It's about staying in the game, not maxing things out immediately as soon as you get in here
09:04After delivering a few free or low-cost projects just to gain experience, you become valuable enough that you can start to charge for your services
09:10When you reach this point, the pricing structure and strategy I recommend for all beginners is called "Cost Plus Pricing." This is what I started with
09:14Off with my own agency
09:18Morning, AI
09:22When we were first getting started back in early 2023, after you deliver a few free or low-cost projects, your experience has increased, therefore you are more valuable
09:26If you haven't already hired a developer, now is a good time to do so
09:29From now on, you should be adding some profit to your deals with what's known as Cost Plus pricing
09:32 In order to do Cost Plus pricing, you need to estimate the time and resources required to deliver a client's project
09:37You reach out to them or they come to you and offer a service
09:41Once you fully scope the project and determine what they need and what you're going to need to build, you can do an estimate of the time and resources required and how much that's going to cost
09:47Going to cost you, and then you need to get your developer's hourly rate that you've hired to take on these projects
09:51That may be from $30 to $50 an hour, depending on how skilled and experienced they are
09:55Then, you can apply a markup to get your final cost
09:56For example, if the project was estimated to take 60 hours of development work with your one developer, and he or she costs $50 an hour, then when we multiply these two together and then add our markup of, say, 2x or 3x—I recommend that you start off with 2x; that's what we did at my agency
10:10So, just basically get the developer's cost and double it
10:11That's a good starting point for actually making a profit on your deals
10:14Then, you can start to increase that to 3, 4, or 5 times
10:17We eventually got up to 6 times
10:197x for some of the larger projects we did
10:22Um, you can just continue to increase it, and that's going to give you a nice, healthy margin
10:24You've got the experience needed to justify charging these prices
10:26When it comes to signing the deal, getting the first invoice paid, and getting the money in your account, there are a few different ways you can structure the payment terms
10:33The one I started out with and recommend to most beginners, particularly on projects that are under $20,000 to $30,000, is a 50% upfront and 50% on completion structure
10:41This structure is really good when you're starting out because if you're just doing a 2x markup, like I said, if you have $1,000 of cost and then $2,000 price, that..
10:46You're charging out
10:51When you take that 50% upfront, you're immediately covering what your expected costs are going to be
10:56So ideally, with the 3x markup, you get a little bit more buffer, and you're almost always in profit
11:00But with this structure, if you take a 2x markup and the 50% upfront, you've covered your costs, and then the remaining 50% on completion
11:06As I said here, make sure you set the terms very clearly and the contract specifies what is defined as completion
11:10That's a whole other story; I can do a video on contracts if you want
11:15But make sure that you've clearly stated what the final deliverable or end result is so you don't get messed around on that final payment
11:21And just to reiterate, the most important thing out of this whole..
11:24The main takeaway I want you to get is that experience is more valuable than money when you're starting out
11:28It's really the only way to succeed in the long term
11:29If you don't understand that and you don't change your approach, you're going to run into failure after failure after failure because you're trying to shoot too high for your current skill level, which causes a whole bunch of issues for yourself, your business, and your clients too
11:42Make sure that you're taking on low-cost or free projects to build case studies and experience early on, collect testimonials from these initial projects, and gather data on the before and after of the real impact that you're providing to your clients so that you can prove your value
11:54You can create value for other businesses too, and my final point here is that every early-stage entrepreneur right now thinks that they're an AI expert just because they play around with ChatGPT and Claude, despite having no experience in actually delivering these solutions for businesses
12:05So, successful deliveries early on and even at the later stages of your AI automation agency journey are really the gold in the space, and should be your number one goal early on
12:16It's just, can I get a handful of successful deliveries under my belt to see things through to completion, work with clients, and gain experience in dealing with them? Then, you can use that data to increase the prices of your services
12:27Continue to take on more clients
12:28Quick recap of the key takeaways in this video: we have experience coming first
12:31Prioritize gaining experience and case studies over immediate profits, which is easy to do as a beginner
12:37Take free or low-cost projects to build experience and ultimately build trust and proof
12:40 Secondly, Cost-Plus pricing: after a few successes, you can add profit to your rate by using Cost-Plus pricing with a 2X markup initially
12:46 Thirdly, structure your deals with 50% upfront and 50% on completion to cover costs and reduce risks initially
12:50 Number four, experience plus skills equals value
12:55Your skills and experience define your value
12:56Increase your rates as you grow
12:58 And finally, keep it simple
13:02Start
13:07With basic no-code or low-code projects, depending on your skill level, if you're a developer, you can jump up a bit higher in order to minimize your costs, reduce the complexity of your builds, and really accelerate your learning before you start tackling complex projects, which are definitely out there
13:12This video is only really just scratching the surface on AI automation agency pricing
13:16There’s a lot more to it—retainers versus upfront pricing, by milestone, cost plus, first value-based pricing, data collection for price maximization, and more
13:22There’s so much left that I really had to exclude a lot of it to keep this short and sweet for beginners
13:28But if you want to learn about these topics… You can first subscribe to the channel because I might make some videos on it later
13:33Actually, drop a comment below if you want me to make any of those videos or if there are specific parts you're particularly interested in
13:37If you haven't already, join my free School Community, which is the first link in the description below, where I have a free course on starting an AI automation agency that I just released
13:44So, everything you need to start your AI automation agency is in there
13:47If you haven't already joined the School, the first link is in the description
13:50That's all for the video, guys
13:52I'll put another one up here if you want to learn more about how to hire your first developer, which is the next problem after this
13:56But that's all for the..
13:57Video guys, thank you so much for watching, and I will see you in the next one.
