Think You’re Not Ready For Outcome-Based Pricing? Think again!
This Is Your Outcome-Based Pricing Starting Point
Chances are you’ve not only heard of outcome-based pricing strategies, but you’ve likely strongly considered what it would take to implement such a strategy at your company. After digging into the details, though, it’s easy to become overwhelmed by all the changes you’re expected to make. You then make the assumption that you’ll be ready for this ‘one day’ in the future.
The reality is that while outcome-based pricing (aka performance-based pricing, usage-based pricing, Machine-as-a-Service (MaaS), etc. and often confused with rental and leasing models) has a complicated history, the complexity surrounding your starting point is not what it appears to be.
In this post we are going to explore 7 facts about outcome-based pricing that will prove that there is a clear starting point and the wait is over for your company.
Below are 7 reasons why your business is ready for an outcome-based pricing approach, contrary to what you may believe.
1. While most solution providers enforce full-scale adoption right away, you do not need to do a full-scale adoption across all of your product lines to introduce outcome-based pricing to your business for the first time.
Most companies are, rightly so, worried about too much change all at once. The fact of the matter is that the only smart way to approach this is in stages so that you can understand the best strategy that’s going to work for your business and the way you interact with your customers.
Building in stages helps minimize the risk of this endeavor because you’re not fully committing to any one path before it’s proven itself.
2. While some companies experience difficulties ensuring proper data management across information quality, security, and privacy, this only applies to companies that take a manual approach to outcome-based pricing. New solutions today automate privacy and security across all information that’s exchanged.
It’s true that there are a lot of moving parts involved in outcome-based pricing. If you do this alone, without the help of the right technology and subject matter experts, it can overwhelm you.
What does having the right technology mean? Blockchain technology, for instance - a term you’ve likely heard before but don’t quite understand (because very few do!) - is what allows for the protection of all stakeholders’ private information while ensuring this information’s accuracy.
Both are critical factors, and both are very hard to manage with a manual process. However, by implementing the right technology you can reduce hours of error-prone manpower to a fully automated process.
3. While you will need to evolve your internal invoicing systems, there are automated solutions that create a seamless engagement between you and your customers. This eliminates the challenges associated with invoicing when inputs are in a constant state of change.
It’s true that outcome based pricing does mean that your billing department will need to implement a dynamic process where periodic invoices of different amounts are sent to your customers.
To assemble and train a team of employees to manage this process is arguably cost prohibitive. Not to mention the potential for errors along the way.
Automating this process is by far the most efficient and effective way to ensure accuracy (and sanity) throughout your operation.
4. Some companies hesitate to implement an outcome-based pricing strategy because they’re worried about customers failing to payback on their agreement. The right partner is going to mandate specific strategies to mitigate any payback issues that could arise.
Part of the challenges that arise on this front are due to a lack of trust and information being exchanged between all parties involved. Automating this process securely creates more trust and less issues on the payment front, especially if payments are directly tied into the invoicing process and automated as well.
However, in some scenarios where the entire process isn’t automated, certain protections can be built into the process:
- You can build in minimums to ensure the machine will be used a certain amount in a given month.
- You can charge on if the machine if available but not being used
- Ultimately, if a customer is not paying for the machine’s use, you can install a kill switch on the machine to prevent it from being used until the bill is paid.
**5. While some companies ‘worry’ about the responsibility of servicing, maintaining, repairing, and replacing equipment, this actually creates new revenue stream opportunities between you and your customers. **
As an OEM, you can design what is included in your ‘package.’ There isn’t any obligation to include specific items on this front. You can set your agreement with your buyers.
However, this can create new streams of revenue for your business.
Service packages are an opportunity to grow the relationship with your customer and ensure they are maximizing the use of their equipment.
By bundling a service-oriented solution together (your equipment + support throughout the unit’s lifecycle) you can eliminate the fears your customers may have that your equipment isn’t as great as you say it is. There’s no place to hide if they’re interacting with you on a regular basis.
Some may confuse this approach to a simple leasing program, but leasing is still a passive approach. When the OEMs’ compensation is tied to the performance of the machine, they’re incentivized to ensure the equipment is running to the best of its ability. The customer appreciates this on their end too because they’re maximizing their revenue out of the unit.
6. While it’s true that sales teams will evolve their commission structures, outcome-based pricing strategies create benefits for both the rep and the employer.
First, we need to state that sales reps can get the same agreement as they currently do. But each unit stands to generate more revenue over time so reps could make more money in the long run if they evolve their commission structure based on the unit’s lifetime performance vs the one lump some when the sale occurs.
We have helped structure a lot of these agreements and it is important that you don’t want to disadvantage the sale of a unit based on outcome-based pricing compared to a traditional one.
Give sales reps the same amount up front, plus the residuals in the future if the machine continues to perform as an added bonus. This helps to make your sales reps stickier and reward them for pushing your outcome-based pricing model.
With this model, they are rewarded for increasing their service to end-users as well. The more ‘service’ they sell, the more they can make. It doesn’t just end when the unit is sold.
7. While many companies ‘worry’ about the added challenges associated with balancing your books, this only applies to companies that take a manual approach to outcome-based pricing. New solutions today automate all the book keeping and ensure its accuracy.
There are a lot of moving parts to an outcome-based pricing strategy. We don’t disagree that historically it’s been a cumbersome process to evolve from a traditional pricing strategy because of all the manual aspects you build into your business.
This is why the smartest outcome-based strategy partners help you implement an automated approach. There are more costs and hassle associated with managing this strategy manually.
The reality today is that technology has enabled a process that’s completely automated for you, safe and secure for your buyers, and clearly demonstrates the added value of implementing an outcome-based pricing strategy with your business.
Here’s the bottom line
It’s important to understand that the right partner will ensure you implement an approach that both makes sense financially and does not create a lot of uncomfortable, rapid change or additional workloads.
Outcome-based pricing is an incredible opportunity for OEM equipment manufacturers, and thanks to automation, it’s never been easier to finally take your first step.
To start a conversation with an implementation expert, fill out the form below. Don’t worry, filling out a form does not mean you’re just going to be inundated with emails and calls from a sales rep.
Within 24 hours someone from SteamChain will be in touch with you to discuss your business and the best way to start seeing the results of an outcome-based pricing strategy.