← Business Models: Core (all topics)
Outcome & usage-based pricing
What it is
Billing for a result or for consumption rather than for effort or units supplied - a refractory supplier paid per tonne of steel produced, a retreader guaranteeing kilometres, an IT provider paid for a delivered outcome, a compressor billed per unit of air
It aligns the supplier's incentive with the customer's economics rather than with volume sold
Impact on industries
- Aligns incentives correctly - the supplier profits by making the product last longer or work better, which is exactly what the customer wants
- Decouples revenue from headcount or tonnage, which is the only pricing model that survives automation of the underlying effort
- Transfers performance risk to the supplier, who now absorbs underperformance caused by the customer's own operating conditions
- Requires measurement both parties trust, and attribution disputes are common where many factors affect the outcome