How to Use Model Price Drop Stress Test
Splits today's COGS into AI and non-AI components, then projects margin if AI cost drops while either revenue is preserved (keep-savings) or compressed proportionally to AI's share of COGS (pass-through).
Bottom Line
Recompute gross margin under 10, 30, and 50 percent LLM price drop scenarios under two competitive narratives: keep the savings or pass them through to customers. Splits current COGS into AI and non-AI components so margin sensitivity is honest, then ranks which scenario most threatens unit economics.
Model Price Drop Stress Test
Margin under 10/30/50% LLM price drops with both keep-savings and pass-through views.
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What It Does
Use the calculator with intent
Splits today's COGS into AI and non-AI components, then projects margin if AI cost drops while either revenue is preserved (keep-savings) or compressed proportionally to AI's share of COGS (pass-through).
AI product founders, finance teams, and pricing strategists planning around continued model-price compression.
Interpreting Results
If keep-savings margin balloons but pass-through margin barely moves, you're well-positioned even if competitors compete on price. If pass-through margin compresses below today's number, the category is racing toward commodity.
Input Steps
Field by field
- 1
Monthly Revenue
Total recognised revenue this month.
- 2
Variable AI Cost
Variable AI line item only — exclude reserved or committed spend that won't drop with list prices.
- 3
Current Gross Margin
Current gross margin %, used to back out non-AI COGS.
- 4
Read the Stress Scenarios
Tool runs 10/30/50% drops automatically under both narratives.
- 5
Interpret Keep vs Pass-Through
Reality usually sits between keep and pass-through; differentiated SaaS holds savings longer than commodity tools.
Common Scenarios
Use realistic starting points
AI-light SaaS
Monthly AI cost
6000
Gross margin today
70
Margin barely moves; AI is < 10% of COGS.
AI-heavy SaaS
Monthly AI cost
25000
Gross margin today
50
Material margin lift if you keep savings; pass-through tells you the floor.
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Questions people ask next
The short answers readers usually want after the first pass.
Sources & References
- Anthropic API pricing — Anthropic
- OpenAI API pricing — OpenAI
- a16z LLM token price trends — Andreessen Horowitz
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