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Estd 4.22.2023
In the evolving SaaS landscape, traditional pricing models are giving way to more customer-centric approaches. Among these, outcome-based selling has emerged as a powerful strategy that aligns pricing directly with customer success. For SaaS executives, this shift represents both an opportunity and a challenge: how do you price your solutions based not on features or usage, but on the concrete business outcomes you deliver?
The Evolution of SaaS Pricing Models
The SaaS industry has witnessed several pricing evolutions:
- Feature-based pricing: Charging based on access to specific features
- User-based pricing: Charging per seat or user
- Usage-based pricing: Charging based on consumption
- Value-based pricing: Charging based on perceived value
- Outcome-based pricing: Charging based on measurable business results
According to a recent OpenView Partners survey, 61% of SaaS companies are now incorporating some form of value-based or outcome-based elements into their pricing strategies, up from just 34% in 2018.
What Is Outcome-Based Selling?
Outcome-based selling ties your pricing directly to the measurable results your customers achieve through your solution. Rather than selling features, you're selling guaranteed outcomes—whether that's revenue growth, cost reduction, time saved, or other key performance indicators (KPIs) that matter to your customers.
As Jacco van der Kooij, founder of Winning by Design, puts it: "In outcome-based selling, you're not selling a product; you're selling the impact of that product on your customer's business."
Why Outcome-Based Pricing Matters Now
Several market forces are accelerating the shift toward outcome-based pricing:
Increased Buyer Sophistication
B2B buyers are becoming more discerning. According to Gartner, 77% of B2B buyers state that their purchases are very complex or difficult. These buyers are less interested in features and more focused on whether a solution can deliver specific business outcomes.
Economic Uncertainty
In times of economic uncertainty, businesses scrutinize every purchase more carefully. Outcome-based pricing reduces perceived risk by tying payment to results, making it easier to justify investments.
Competitive Differentiation
In crowded markets, outcome-based pricing can be a powerful differentiator. A study by Bain & Company found that companies with innovative pricing models grow revenue 25% faster than their market peers.
Building an Effective Outcome-Based Pricing Structure
1. Identify Meaningful Outcomes
The foundation of outcome-based pricing is identifying the outcomes that genuinely matter to your customers. These should be:
- Measurable: Can be quantified through objective metrics
- Attributable: Clearly linked to your solution
- Valuable: Have significant financial or strategic importance
For instance, a marketing automation platform might focus on lead generation growth, a customer service solution on reduced resolution time, or a sales enablement tool on increased win rates.
2. Establish Clear Metrics
Every outcome-based pricing model needs well-defined metrics. According to research by Simon-Kucher & Partners, the most successful outcome-based pricing models use no more than 2-3 key metrics to avoid complexity.
Examples include:
- Revenue impact: Increased sales, improved conversion rates
- Cost reduction: Decreased operational expenses, reduced staffing needs
- Time savings: Faster processes, reduced time-to-market
- Risk reduction: Fewer errors, improved compliance
3. Determine Pricing Structures
Several outcome-based pricing structures have proven effective:
Performance-Based Pricing
In this model, a portion of your fee is at risk and tied to performance thresholds. For example, a customer might pay a base fee plus bonuses for exceeding agreed-upon targets.
Gain-Share Models
You receive a percentage of the quantifiable value delivered. If your solution saves a customer $1 million annually, you might receive 20% of those savings.
Success Fee Structures
Payment is contingent on achieving specific milestones or outcomes. This might include a smaller upfront fee with larger payments triggered by successful outcomes.
Real-World Examples of Outcome-Based Pricing Success
Salesforce's Success Plans
Salesforce offers "Success Plans" that go beyond traditional support packages. These plans include proactive guidance and strategic planning, with pricing tied to customer adoption metrics and ROI achievements.
HubSpot's Implementation Program
HubSpot's implementation services are priced based on achievement of specific goals established during onboarding, such as reaching certain levels of marketing qualified leads or sales opportunities.
IBM's Watson Health
IBM's Watson Health solutions often incorporate outcome-based pricing elements, particularly in healthcare settings where payments are tied to improvements in patient outcomes or operational efficiencies.
Challenges and Considerations
Data Access and Measurement
Outcome-based pricing requires access to customer data to measure results. According to a survey by Forrester, 67% of companies cite difficulties in accessing and analyzing relevant customer data as a key challenge in implementing outcome-based pricing.
Outcome Attribution
Determining how much of an outcome is directly attributable to your solution versus other factors can be difficult. Establishing clear baseline measurements before implementation is crucial.
Internal Alignment
Your entire organization needs to align around delivering outcomes, not just selling software. This often requires changes to compensation structures, customer success approaches, and even product development priorities.
Getting Started with Outcome-Based Pricing
Begin with Pilot Programs
Start with a small group of customers who are willing to participate in outcome-based pricing pilots. These early adopters can provide valuable feedback and success stories.
Implement Rigorous Measurement Systems
Develop systems to accurately track and measure the outcomes you're promising. This might involve integrations with customer systems or regular reporting processes.
Evolve Your Customer Success Function
Customer success becomes even more critical with outcome-based pricing. Your team needs to be equipped not just to drive adoption, but to ensure customers achieve their desired business outcomes.
Conclusion: The Future of SaaS Pricing
Outcome-based pricing represents a fundamental shift in how SaaS companies create and capture value. By directly tying your pricing to customer results, you create stronger alignment, reduce perceived risk, and potentially capture a greater share of the value you create.
As Thomas Lah, Executive Director of Technology Services Industry Association (TSIA), notes: "The companies that will win in the next decade are those that can confidently tie their compensation to the outcomes they deliver."
For SaaS executives, the question is no longer whether to explore outcome-based pricing, but how quickly and effectively you can implement it as part of your go-to-market strategy.