Beyond Outcomes: How to Tie SaaS Pricing to What Really Drives Revenue

Outcome-Based Pricing (OBP) sounds great, but it's almost impossible to do.

First off, let's define what an outcome is. In general, outcomes are actions tied directly to your customer's income statement. For example, a new sale closed (revenue) or a customer call resolved autonomously (cost).

Attribution is the main obstacle to linking software performance to business outcomes. For example, did the new marketing automation software increase sales, or was it the latest creative marketing campaign, the new sales comp plan, or maybe even a pandemic?

For most SaaS products, it's impossible to directly attribute value to the income statement. However, there are a few cases where it can be done. To achieve outcome attribution, you need:

1. software that performs tasks autonomously
2. business cases that are simple and binary

Agentic AI is the most obvious example, and the reason why the OBP topic is getting so much traction right now. Software that can take action and act independently can better claim attribution for an outcome over traditional SaaS.

Yet, even with Agentic AI, the use case must be straightforward and binary, and the completed task must have quantifiable value.

When attribution breaks trust

It takes customer support provider Zendesk seven pages and three flowcharts on its website to define a "Successful Automated Resolution." The real world is messy, and one of the drawbacks of outcome-based pricing is that it creates tension between the vendor and customer when calculating the detailed bill.

That tension was evident with a pricing optimization company I worked with that improved the margins of soft goods retailers. They did several controlled tests, and the software delivered tens of millions of dollars in gross margin. The vendor pursued a pricing plan based on a percentage of the gross margin improvement the software delivered. While logical, in practice, when it came to calculating the bill, it was a contentious cluster of competing spreadsheets. "What about this? You can't count that. Etc." What should have been a win-win actually created ill will.

It's the journey to Outcome-Based Pricing that's important

While it's clear that there are currently few opportunities for actual outcome-based pricing, going through the exercise of trying to identify the outcomes you are trying to deliver for your customer and the steps along the way can be very productive.

James Colgan from Slack explains how to identify metrics that drive customer value:

The key is to step back and understand what it means for your user to successfully use your product. What does success look like to them, and how does that manifest within the product in terms of actions?

In our case, it was the number of messages in a channel sent by more than one person within six days.

From data analysis, we knew that once this number was achieved...activation and engagement would start to grow organically.

A communication and collaboration tool like Slack is not easily tied to a customer's income statement; customers know that if the tool is not used, it's not creating value, so active users (a simplified measure of the above) have become the pricing metric.

Pricing the work, not the outcome

As companies explore their pricing journey from granting access (seats) to usage-based to outcome-based, they may land on steps short of an outcome but more than simple usage. The industry is defining these activities as "work," which is giving rise to work-based pricing.

Zapier would be an example. Their automation platform saves companies money by automating routine tasks, but it would be virtually impossible to estimate the labor savings of each automation. It is, however, relatively easy to count the automations and charge each time one is executed.

Clay is another good example of work-based pricing. Clay enriches prospect and customer data by aggregating and consolidating hundreds of data sources. They charge based on how much work their AI agent does and how "hard" the request is. Finding a work email for someone is easy, while finding their mobile number is hard. They charge a different number of credits according to the task's difficulty.

Why packaging still matters

Despite the move to more variable pricing, whether usage-based, work-based, or outcome-based, most companies still retain some form of subscription pricing. The allure of committed ARR is strong.

Most plans charge a monthly fee for a standard, pro, or enterprise seat as well as a fixed number of credits for usage, work, or outcomes. If the full allotment of credits is consumed, most plans shift to a pay-as-you-go model with a premium on each credit.

Moreover, the longer a SaaS business has been around, the more legacy pricing it has to deal with, and the more complex pricing becomes. Zendesk, which has been in the space for years, prices based on 82 features within three plans plus outcome-based pricing at $2 per Successful Automated Resolution.

Companies must be vigilant to reduce pricing complexity while maintaining flexibility.

Anchoring pricing to real value

There is plenty of gray and overlap between the definitions of usage, work, and outcomes. Ideally, you will identify the value driver that is as close as possible to your customer's income statement, for which there is no argument around attribution.  

As software becomes more autonomous, fixed pricing tied to users makes less and less sense, and the only way to capture the value of your application is by tying it to the value drivers of your customers. Working through that value chain will deliver benefits regardless of whether it results in outcome-based pricing. Which it probably won't.