Xero sets out how it will charge customers for AI

Xero told investors on 12 November how it intends to charge for AI, as it reported revenue up 46% to NZ$1.7bn (£730m) for the six months to 30 September. Its half-year release sets out AI features bundled across existing plans, standalone AI add-ons and the foundations for usage-based pricing “to align costs with utility”.

Chief executive Sukhinder Singh Cassidy set out Xero’s routes to charging for AI on its earnings call that day and gave the first sign of how they are landing. “In the UK, early take-up of AI add-ons on lower price tiers is encouraging,” she said. She described Xero as “at the start of AI monetization”.

Cassidy told analysts that Xero had decided to “keep AI features out of our lower plans, given customers’ price sensitivity”, and that “add-ons are working”. On the UK price list, auto-reconcile, which Xero labels an AI feature, is a £3.50 a month option on the Ignite plan, which costs £18 a month, and comes included from the Grow plan upward. The add-on gives Xero a way to charge for AI in the part of its base where it has judged that price matters most.

AI use by plan

About 1 million of Xero’s 5.1 million customers used its generative AI features in the year to September, its investor presentation shows.

In September the share of Ultimate customers who used an AI feature in the month was about 5.5 times the share on Ignite and Early, the entry plans. Cassidy said Xero knows there is “incremental willingness to pay”, but that it is hard to say yet whether AI is behind customers’ moves between plans. Xero has “early evidence that differentiation in plans is working”, she said.

Bundling raises what the higher plans include, and adds revenue when customers move up to those plans or pay more for them. Cassidy said bundling AI into Xero’s existing product range “supports adoption and straightforward monetization through a familiar subscription model”.

Usage charges and price rises

The third route is the least settled. Asked on the call whether Xero would move toward consumption pricing, Cassidy said some customers “just want it bundled because they want to know what they are going to pay”, while “the value of advanced features may be much more realized in consumption”. She said the fit for consumption pricing correlates closely with the size and complexity of the business: “I think you will see a mix of models in our base.”

Her prepared remarks put credits and add-ons under consumption, and she pointed to usage Xero can already see through its API calls. Customers already pay for custom solutions built on those APIs, she said. Answering Eric Choi of Barrenjoey, she said broad AI features would most likely be bundled, “plus some amount of overages for power users”. Neither the release nor the presentation gives a price or a start date for usage-based charges, or says which plans they would apply to.

Chief financial officer Claire Bramley said targeted pricing “contributed less than historically as other levers grew” in the first half, describing “a multi-product business at work, with less reliance on price rises and more ways to monetize the value we deliver”. Xero’s full-year revenue guidance assumes some initial revenue from new AI features.

Bramley also set out why AI that cuts staff does not cut what Xero earns from a customer: “ARPC is per business, not per seat, so AI enabling a business to run with fewer staff does not impact it.” Xero’s investor presentation makes the same case against seat-based pricing, adding that its AI pricing reflects “a mix of both subscription and consumption pricing”.

Work for accounting firms

Accounting firms are a separate line. Xero launched Xforce by Xero in beta on 12 November, pairing firms with Xero engineers and partner consultants who work with them to build AI workflows, with Azets and Sumer among its UK design partners. “Accountants and bookkeepers are being asked to do more with fewer people, and fewer are entering the profession,” Cassidy said in the launch announcement, adding that firms “need hands-on support to build it into the way they work”.

On the call she described that end-to-end work with firms as “an entirely new monetization stream for Xero”. Historically, she said, Xero has charged accountants and bookkeepers by selling them bundles of licenses. The announcement does not say what Xforce costs.

Two of Xero’s three routes are in place: AI bundled into its plans, and add-ons that UK customers on cheaper plans are already taking. What usage-based charging will cost, when it starts and what firms will pay for Xforce are still open.