What the Hell is Pricing-Outcome Alignment Anyway…

 Imagine a world where you could pay for a service based on the performance or outcomes of the service. Instead of paying for the time, cost, or materials? Imagine if payed the sales trainer based on how much they improve performance of your people, or if you payed the bug/pest guy based on how long the bugs stay away.

What if the cleaners got paid based on how good a job they do, rather than the time they spend on your house.

It sounds like a dream come true, right?

This are all business models based on pricing-outcome alignment.

Why this is important?

Most of your competitors probably price the same way as you. But pricing is an interesting opportunity to differentiate - and when you do, everyone else will be a follower.

Now don't worry, I've not gone crazy... I know you're probably thinking,

"you can't possibly take all the risk as the company - what if they do a poor job?"

Then you don't get paid and lose money. Yes, there's many issues with just getting paid on performance when you're the business.. But that's not the only option.

Now if you are wondering what I mean, never fear. I have some excellent examples of companies that have aligned their pricing and outcome.

Recruitment example - 360talent

The first gig I ever engaged them for was a national sales manager (maybe a 180k-200k level role). I told them, I know someone, and I'd like them to go through your process, alongside the other potential recruits you find. But I don't want to pay your normal fee given, because I've found the candidate you've not had to do that work.

They said no worries! You can pay us by the hour up to a cap which is our normal fee. That means if it take less time you pay less.

I was so thrilled that they were willing to align their commercial model with my outcome, they got another 5 roles out of me. They could have just said the fee is the fee, that's how it is… and they wouldn't have got any of the others.

Education example - Lambda School (now called Bloom Institute of Technology)

They had two payment options - pay $20k upfront, or pay nothing to study now, but pay 17% of your salary once you're employed in a developer job up until a cap of $30k.

Using a "customer outcome aligned model" yielded them 50% more than their upfront tuition model.

Recently they have just been bought, and have adjusted the policy now to a 110% tuition refund guarantee which still aligns with the customers outcome, it's just constructed differently. Instead of paying some of your wage, you apply for a loan. It accrues 12.5% interest rate, that they will start paying back once they have $50k+ in earnings. If you don't get any job offers paying at least $50k US ($75k AUD) within a year of graduating they'll refund full tuition plus an additional 10%.

It's a great model for those who have major financial barriers to go after it with the safety of getting out of it entirely - and they'll get given $2.2k for having their time wasted.

Real estate example - Place Real Estate

I sold my previous home in Brisbane in 2022, and got a great real estate agent from Place real estate. They are the top agent in the area and I could tell why pretty quickly, they way it works is you pay them what you think they're worth (which was around 1.8% to 3.3%). Fantastic right? She did do a great job - and I think I paid her 2.9%, which was 30% more than her peers would have got, but I'm confident she got me at least 100-200k more than the others would have.

So she was happy, and I felt like I had choice, and it was all performance based.

Professional services example - Horsell Consulting

This business works in the tender development process, building huge 1000 plus page document. They consult on complex procurement - both to defence to build them, and also to industry to bid for them (never on the same ones of course - that would be a conflict!)

You'd be amazed to know that these 1000+ page, interconnected documents are done in word documents. Drew however, whilst an entrepreneur benefiting from the consulting money to build these, is also a taxpayer thinking - so much taxpayer money going into these, must be a better way!

He developed some software to automate 80% of the process - make the whole process digitally led. So he can do it in half the time, for half the price. So he's now able to go to any major organisations charging a fixed fee that is half of what the normal fee is, and his competitors are miles behind.

How can you do this yourself?

Now you might be wondering how you can implement pricing outcome alignment in your business. If you are interested in having the same kind of impact in your business, you have to ask yourself 3 important questions:

• What annoys your customers about how you and your industry peers currently charge (particularly where it doesn't align with what success looks like to them)?
• What is the outcome they want/what do they care about?
• What new pricing option could you implement where you take more risk, but perhaps receive upside as a result and the customer feels like they win?