The Age of Outcome Based Pricing
What have ya done for me lately?
When I became an FP&A leader for the first time, I built our entire operating model from scratch. I had no context and no templates. And that blank workbook staring back at me was DAUNTING!
That’s why I’m excited to introduce our sponsor, Mercury.
Their VP of Finance, Dan Kang is sharing his personal template for building a financial forecast model.
Whether you’re preparing to fundraise, updating investors, or charting a new course for the company, you’ll likely reach a point where you’ll need to build a forecast model. It can help you align on clear business goals and understand why those goals matter.
AI is ushering us into a brave new world of Outcome-Based Pricing. This whole concept of “units of work completed” is way different from charging for access to software, which is what we’ve traditionally done. It moves the burden from the customer having to extract value from a tool to the vendor delivering measurable results.
Let’s consider some analogies using the gym world.
Planet Fitness: A subscription model. You’re charged the same amount each month for access to the gym. They don’t care if you actually use the treadmill or not. In fact, they hope you don’t show up because it allows them to sign up even more deadbeat members based on expected capacity. The success of the business is based on people paying for something they don’t fully use—CFOs know this all too well from seat-based pricing in software.
Barry’s Bootcamp: A usage-based model. You’re charged (an extraordinary amount) per class. The pro here is that you don’t pay if you don’t use the services. The con? You could theoretically show up, pay an arm and a leg, and just roll around on the mats for 45 minutes without breaking a sweat (guilty as charged). It’s aligned with usage, but it’s still not connected to actual success.
If AI Were a Gym: This would be an outcome-based model. You’d be charged based on actual improvements in fitness. For example, this could be measured using a proxy like muscle-to-fat ratio or an increase in how much you can lift. It’s not about whether you attended the gym or how many classes you took, but whether you achieved your fitness goals.
In traditional seat-based pricing, customers are charged a set amount, and they can use the product as much or as little as they want. For power users, this was a great deal. But there’s an onus on the customer to set the product up correctly, bring awareness to their co workers, and ensure users are trained. How many employees have Adobe licenses they aren’t even aware of? For CFOs, this often resulted in “shelfware”—software that was paid for but never fully used, leading to waste.
So while the ROI is technically in the customer’s control, and the cost is predictable, there's also an inherent risk. If the customer fails to adopt or configure the software properly, the value they receive diminishes.
Evolution Beyond Usage-Based Pricing
Usage-based pricing seems like a great solution: you only pay for what you use. However, this model doesn’t guarantee success either. A company might be using a service heavily, yet still not extracting real business value from it. You could run SQL queries into oblivion and not actually get smarter on whatever you are trying to analyze. You could also “leave the water on overnight” and blow out your cost structure.
That’s where outcome-based pricing becomes the next evolution—by ensuring you’re only paying for measurable success, not just access or usage.
This is the future CFOs are moving toward. Instead of being tied to broad metrics like headcount growth to predict software expenses, they’re looking for pricing that aligns directly with business success.
The Advertising Analogy: CPM vs. CPA
Some of this reminds me of the advertising model of CPM (Cost per Mille, which I’ve always thought is an absurd name, since it sounds like “million” but really means “thousand”?), which is based on impressions, and CPA (Cost per Action), which is based on specific actions like registrations or demos. If you’re buying advertising, you LOVE CPA: “I’ll only pay for actual registrations I get from this ad.” But if you’re the publisher, you’d rather charge CPM: “I can deliver impressions, but whether those impressions convert is outside of my control.”
It’s the old “you can bring a horse to water, but you can’t make it drink” scenario.
This speaks to the challenges of success-based pricing. Ideally, it’s a win-win for the customer and vendor, where the customer only pays when successful outcomes are achieved. But it can lead to attribution fights, especially if the vendor doesn’t own the end to end process.
If I help a sponsor land a $1,000,000 client through my newsletter and say, "Hey, I should get 20% of that because I contributed to your success," they might say, "Well, there were other factors involved, so we’re not attributing all of that success to you."
Attribution fights are like rock fights—they’re painful. This is why vendors and customers need to be very clear and aligned on what “success” looks like before implementing outcome-based pricing. Both sides should be celebrating the success together, rather than battling over what counts as a result.
In fact, you’re best to use a “proxy” for success, rather than the pure play success measurement, so you don’t become a tax. Speaking of that…
Avoid Becoming a “Tax” on Success
If you’re not careful, success-based pricing can feel like a tax. Take the example of Intercom, who dodged this, by charging based on successful AI resolutions of customer support requests. For every resolution, they charge around 99 cents. While this doesn’t capture the full ROI (like “how much money we saved the customer”), it’s aligned with a clear outcome: customer issues resolved.
Instead, using a proxy for success (like completed resolutions) creates a smoother, less confrontational relationship. If customers feel like they’re being “taxed” for using your service—especially as they grow and achieve success—they may start to resent the pricing structure. Companies that are viewed as a “tax” are always at risk of high value customers “churning out the top” as soon as cheaper alternatives come along. And that’s the scariest type of churn.
AI as a Key Enabler of Outcome-Based Pricing
What’s making outcome-based pricing more achievable today is AI. AI can help automate and track performance, making it easier to align pricing with clear outcomes. On the RTN podcast, Kyle Poyar used the example of Chargeflow, which helps businesses dispute chargebacks automatically. They only charge a success fee when they recover money for their customers. AI handles the process end-to-end, which reduces friction and ensures customers only pay for results.
Most software companies can’t fully own the process like Chargeflow does, but they can use AI to create metrics that correlate with success—offering a more nuanced, effective approach to outcome-based pricing.
Other examples of outcome based pricing from Kyle:
The Future is Outcome-Based
“The future is already here – it's just not very evenly distributed.
-William Gibson
The corollary to this is the future is outcome based - we just need to figure out how to track it, lol.
Outcome-based pricing isn’t just the next evolution in how we charge for software—it’s a fundamental shift in the relationship between vendors and customers. By tying pricing directly to measurable success, we’re moving toward a model that drives accountability and trust on both sides. AI is the catalyst making this possible, allowing for more sophisticated tracking of results, and ultimately, a more aligned approach to value creation.
But like any powerful tool, outcome-based pricing requires clear guardrails. Vendors and customers will need to be explicit in defining success metrics and proxies to avoid disputes over attribution. Otherwise, they risk turning what should be a win-win into a frustrating, adversarial experience.
Run the Numbers
Listen on Apple | Spotify | YouTube
Me and Kyle of
discuss:The transition to Outcome Based Pricing
New metrics we should track as we enter the SaaS metrics age of AI
How AI is breaking the ARR valuation mold
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Excellent details. However, I think in the software works, folks who gave only seen the SAAS-subscriptions world are confusing between past as you go model vs. Actual outcome based.
Per conversation pricing is much closer to pay as you go, vis-a-vis outcome based.
Just like how, once upon a time we used to pay per minute for a mobile call. Today we pay a fixed monthly fee. Now if the pricing switches to, you only pay when the call is initiated and successfully connected - fixed fee for any fusion of the fee. It is still a part as you go model largely based on "only if you use" but a didn't pricing.
I think the idea of outcome based / gain share approach is absolutely fantastic, it will take away a lot of unnecessary stuff. But still need more objectivity on defining those exact outcomes and tightly and rightly attributing them as you mentioned very well.
Interesting times, ahead.