Outcome-based pricing: Everything you need to know

Pricing models have never stood still. From flat licences to subscriptions to pay-per-use, each shift has promised a better alignment between what buyers want and what sellers provide. The latest evolution, in part thanks to rising AI usage and automation, is outcome-based pricing (OBP).

Vice-president and product management research service lead at Forrester, Lisa Singer, describes OBP as simple in theory and tricky in practice.

“It’s when an organisation ties the price they charge to some tangible outcome the buyer is seeking,” she explains.

That could mean savings, greater efficiency, sales, or something narrower, such as a resolved customer support call. Crucially, it is not about the amount a service is used.

“You’re not just paying to use the service. You’re only paying for the outputs you’ve agreed with the vendor are your goals,” says Singer.

This shift builds on how software has priced itself over time. First came access fees: companies paid for seats. Then came consumption: charging by usage. Now, as Singer argues, AI makes it easier both to achieve outcomes and measure them.

“Because of AI, suppliers can really achieve the goals customers want. AI can also track whether or not that outcome occurred,” she says.

The buyer and the seller have to agree on what success is. What counts as a qualified lead?

Lisa Singer, Forrester

Paying for success has obvious appeal, but it also raises alarms. Subscriptions have stuck around because they’re predictable. Outcome-based pricing introduces risk.

A marketing team paying per qualified lead may hit their target and then simply not want any more. Sellers face volatility, which can make forecasting difficult.

“That’s why everybody loves subscriptions, because it’s they’re predictable,” Singer explains.

Caps and hybrid models offer a compromise via a base usage subscription, topped up by outcome-linked charges. Essentially, brands pay for qualified leads up to a point and after that you’re not paying anymore, she explains.

Where outcome-based pricing has been successfully adopted has usually been in tasks with binary measures of success. Call centres are an obvious fit, with players like Intercom and Zendesk charging only for resolved cases. Automated legal services are another, such as AI tools which bill per contract reviewed or trademark application submitted. Fraud detection works the same way. Businesses pay when fraudulent activity is successfully flagged.

“Narrow workflows can use outcome-based, because it’s very clear if that outcome has been achieved or not,” says Singer.

Barriers to use

Marketing software can also charge per lead, provided everyone agrees on what “qualified” means. That agreement is often the sticking point. Defining success sounds straightforward, but quickly gets messy.

“The buyer and the seller have to agree on what success is,” says Singer. “What counts as a qualified lead? What seniority level, what function, what intent signals?”

The technical lift can be just as heavy. Vendors need access to customer data to prove outcomes have been achieved, raising privacy and security concerns. Billing systems have to sync with product systems so a resolved call or blocked transaction automatically triggers an invoice. For sellers, the plumbing is as important as the pricing.

“You need have all the technology needed so the software that is using the outcome-based pricing can talk to the bill paying software and the invoicing software,” she explains.

Because of AI, suppliers can really achieve the goals customers want. AI can also track whether or not that outcome occurred.

Lisa Singer, Forrester

This requires access to customer data, which can naturally raise questions around security and privacy, and how a vendor using OBP is using the information accessed through their software.

Vendors also need to know their customers’ businesses deeply, not just their product requirements. They need strong negotiators, product managers who think in terms of outcomes and legal teams capable of drafting flexible agreements, according to Singer.

“You need to spend the time to understand the outcome you want […] and you need to have the negotiation,” she says.

Singer points to dashboards that let buyers track outcomes and spend in real time as a way to manage costs, and ensure transparency. She explains the vendor also needs a dashboard so the customer can see where they are in terms of number of leads generated and don’t go over budget.

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When outcome-based pricing fails, it’s usually because the parties can’t agree on metrics.

“Many of the very simple outcomes already use it. It’s when things get more complex that the difficulty arises,” explains Singer.

Advertising is an example where these issues are already well documented. Cost-per-click and cost-per-impression are well established, but attempts to tie spend more closely to sales conversions are harder to standardise.

Even with these hurdles, Singer believes outcome-based pricing will increase in popularity. Today she estimates it accounts for just 5% to 10% of contracts. Within five years, she expects it could be closer to a quarter. However, she does not see OBP ever replacing other models entirely. Predictability still matters in her view.

“The subscription piece – the fixed piece – helps ensure a stable relationship,” Singer adds. “What we’ll see is outcome-based pricing layered on top of it, or hybrid models with a base rate plus a kicker if goals are achieved.”