Conceptually, performance pricing is very rational. The buyer should be willing to pay between 10 to 15% of the revenue or cost savings for the use of the product. And as classical economics instructs us, this type of pricing mechanism optimally aligns the incentives of the buyer and the seller. But the reality is more nuanced.

Another point worth adding to the mix is that it can also cause problems for buyers. Most Finance departments are simply not used to this sort of pricing mechanism and the inherent uncertainty it contains so are often not keen on it!