Latest / Closing the Deal with Fexingo: Sales, Negotiation, and Revenue Conversations for Operators / How One Rep Won by Offering an Outcome-Based Pricing Model
Transcript
- Lucas: Luna, I want to walk through a deal that still kind of amazes me when I think about the structure. A B2B SaaS company — call them RetainSoft for this story — was trying to sell a customer retention platform to a mid-market e-commerce brand. The sticker price on the subscription was about $400,000 a year. And the buyer's CFO just kept saying no. Luna: Right, because $400,000 for a software tool that maybe works — that's a big ask for a finance person who's been burned by vendor promises before. Lucas: Exactly. So the rep — her name is Sarah — decided to flip the entire pricing model. Instead of saying 'pay us $400K upfront for the platform,' she said, 'What if we tie our fee directly to the retention improvement we deliver? If your customer retention rate goes up by 2 percent, you pay us a percentage of the incremental revenue that generates.' Luna: So she moved from a subscription fee to a gain-share model. That's bold. How did the CFO react? Lucas: The CFO sat up, because suddenly the risk was off his books. He wasn't cutting a $400K check for a promise. Instead, RetainSoft would only get paid if retention actually improved. Sarah proposed a baseline measurement period of three months to establish the current retention rate, then a twelve-month pilot where RetainSoft's fee would be 20 percent of the incremental gross profit from retained customers above that baseline. Luna: Twenty percent of the upside — that's a pretty reasonable ask if the software actually delivers. But how do you define 'retained customer' cleanly enough that both sides agree on the number? Lucas: That's the hardest part of outcome-based pricing — the metric definition. Sarah and the CFO spent three weeks negotiating the formula. They agreed on a definition: a customer is 'retained' if they make at least one purchase in each of two consecutive quarters after the pilot start date. They used the company's existing analytics platform as the single source of truth, with quarterly audits by an external accounting firm if either party requested one. Luna: So they built in verification. That's crucial. Otherwise you end up in he said she said over attribution. Lucas: Exactly. And here's where it gets interesting. The pilot ran twelve months. Retention improved by 3.7 percent above baseline. That translated to about $2.3 million in incremental gross profit. RetainSoft's fee came out to $460,000 — which was actually more than the original $400K subscription price. The CFO was happy because the fee was entirely funded by results. Sarah's company was happy because they got a 15 percent premium over list price. Luna: So both sides won. But I have to ask — what happens if retention stays flat or drops? Did Sarah have a downside clause? Lucas: She did. If retention didn't improve by at least 0.5 percent, RetainSoft would receive a reduced fee — just $50,000 to cover implementation costs. And the buyer could walk away with no further obligation. That capped the buyer's downside and made the decision almost risk-free for the CFO. Luna: That's the kind of structure that gets a deal signed. You're essentially saying, 'We believe in our product enough to bet our pay on it.' Lucas: And that's what convinced the buying committee. Sarah later told me that the CFO said after the meeting, 'Nobody has ever offered to tie their compensation to our actual outcome. You're either very confident or very foolish.' And she said, 'Maybe a little of both.' Luna: I love that. But let's talk about when this approach doesn't work. Outcome-based pricing requires a clear, measurable, and attributable outcome. If you're selling something like cybersecurity software where the outcome is 'no breach happened,' that's hard to prove causation. Or if the buyer's data is messy and they can't establish a baseline, you're stuck. Lucas: Right. And it also requires a high degree of trust. The buyer has to believe you won't game the metric. And the seller has to trust the buyer's data and accounting. One bad audit clause can poison the whole relationship. Luna: So when does Sarah recommend this model? Only for companies with a mature data infrastructure and a product that has a direct, quantifiable impact on a revenue metric. She said it's not for early-stage startups with no track record. You need proof that your product moves the needle before you can bet on it. Lucas: Exactly. And the sales cycle is longer — you're negotiating the metric definition, the baseline period, the audit mechanism. That's not a 30-day close. Sarah's deal took five months from first conversation to signed pilot agreement. Luna: But the payoff is that once you have one successful outcome-based deal, you can use it as a case study for the next ten prospects. It becomes a proof point that you're willing to put skin in the game. Lucas: That's exactly what RetainSoft did. They turned that deal into a whole new go to market motion. They now offer outcome-based pricing as a standard option for enterprise accounts above $250K. And their close rate on those deals is about 40 percent higher than their traditional subscription offers. Luna: Forty percent higher — that's significant. And it makes sense. The buyer's perceived risk drops dramatically when the vendor shares the downside. Lucas: You know, this is actually a really good example of something we talk about on the show a lot — that how you structure the economic terms can matter more than the price itself. The buyer wasn't price-sensitive; they were risk-sensitive. Sarah addressed the risk, not the price. Luna: Yeah, and that's a lesson that applies beyond SaaS. Any business that can tie its fee to a client's outcome — consultants, agencies, even some professional services firms — could potentially use this model to differentiate. Lucas: Quick honest thing — conversations like this are exactly why a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo. It literally funds making this many episodes ad-free and focused on real deal mechanics. So if these stories have moved your work forward in some small way, that's where you can keep it going. Luna: Yeah, it's a small group already, and it makes a real difference. We appreciate every single one. Lucas: Back to the deal — one nuance I want to highlight. Sarah told me that the biggest internal pushback she got was from her own finance team, who hated the variable revenue. They said, 'What if retention stays flat and we only get $50K? That's a huge miss against our forecast.' And Sarah's argument was, 'But we wouldn't have gotten the $400K anyway, because the CFO wasn't going to sign. So zero revenue versus $50K or $460K — the variability is actually upside.' Luna: That's the right way to frame it. The counterfactual is zero. Any revenue you wouldn't have gotten otherwise is good revenue. Lucas: And after the pilot, RetainSoft's finance team became the biggest advocates. Because they saw that the variable deals actually closed at higher effective prices than the fixed-price ones. The average outcome-based deal came in at 112 percent of the list subscription price, versus 92 percent for traditional discounts. Luna: So not only did they win more deals, they won them at better margins. That's a compelling argument for any sales leader trying to convince their CFO to try this model. Lucas: Exactly. And it's not just about the pricing. The outcome-based model forced Sarah to really understand the buyer's business. She couldn't just pitch features. She had to know the buyer's retention rate, their average customer lifetime value, their cost of acquisition — she had to do the math with them. That level of consultative selling built enormous trust. Luna: So the pricing model itself became a sales tool. It forced a deeper conversation that actually uncovered more value for both sides. Lucas: Right. And that's the takeaway I want listeners to sit with. If you're in a deal that's stalled on price, ask yourself: is it really the price, or is it the risk? Can you restructure the terms so that the buyer only pays if they get value? That shift in mindset can unlock deals that seemed dead. Luna: And if you need a template, Sarah's approach is a good starting point: pick a measurable outcome, agree on a baseline, define a shared metric, cap the buyer's downside, and take a percentage of the upside. It's not simple, but it works. Lucas: One last thing — Sarah emphasized that you should never offer outcome-based pricing on your first call. You need to build enough credibility first that the buyer believes you can actually deliver the outcome. Otherwise it sounds like a desperate Hail Mary. Luna: Good advice. Use it as a closer, not an opener. Lucas: Exactly. So next time you're stuck, consider whether a pricing structure shift might be the key. It worked for Sarah, and it might work for you.