The "Skin in the Game" Pricing Model
dailyblog.scottdclary.com
Hi All,
Here’s my daily newsletter navigating the crossroads of business, growth, and life.
If you love this content (please share it), but also…
Start here > https://newsletter.scottdclary.com
Check out my Podcast, connect with me on YouTube / Twitter, and read my Weekly newsletter.
Sponsor: Vanta
Security is essential for business success. Without it, deals stall and scaling becomes difficult because investors, customers, and partners expect strong security practices.
Vanta helps businesses prove trustworthiness by automating compliance across 35+ frameworks like SOC 2, ISO 27001, and HIPAA. Their platform:
Automates up to 90% of compliance work
Speeds up security questionnaire responses by 5x
Connects you with security experts
An IDC report found Vanta customers achieve $535,000+ in annual benefits with the platform paying for itself in just three months.
Special offer: Get $1,000 offVanta for a limited time at vanta.com/Scott.
Listen Here
The "Skin in the Game" Pricing Model
You're leaving money on the table.
Worse, you're making sales 10x harder than they need to be.
Most entrepreneurs price their products and services completely wrong. They charge flat fees based on their time, effort, or what "feels right" in their market.
And then they wonder why customers hesitate to buy.
Why prospects ghost them after a sales call.
Why their conversion rates are abysmal compared to the "gurus" in their space.
Here's the uncomfortable truth: When you charge a flat fee, you create misaligned incentives. You win whether your customer does or not.
And deep down, your prospects know this.
They're silently asking: "If this is so valuable, why aren't you willing to bet on yourself?"
The solution isn't a better sales script or fancier marketing. It's restructuring your pricing model so your success is directly tied to your customer's success.
This is "skin in the game" pricing. And it changes everything.
Why Traditional Pricing Models Fail
Let's be honest about what happens with traditional pricing.
You charge $2,000 for your service. You get paid the same whether your customer gets life-changing results or mediocre ones.
That creates a subtle but toxic dynamic:
As the provider, you're incentivized to do the minimum work needed to fulfill your contract
As the customer, you're taking 100% of the risk on unproven results
This misalignment breeds distrust from the start. Your customer has to fully commit while you risk nothing.
And even if you're ethically committed to delivering value, the structure itself creates unnecessary friction in the sales process.
Look at this from your prospect's perspective. They're thinking:
"If I pay you $2,000 upfront and don't get results, I'm screwed. But you still got paid."
No wonder they hesitate. No wonder they need to "think about it" or "talk to their spouse."
Traditional pricing turns every purchase into a leap of faith for your customer.
But what if you could completely remove this objection?
What Is "Skin in the Game" Pricing?
The concept comes from Nassim Taleb, who argues that people should have skin in the game—meaningful downside risk—when their actions affect others.
When applied to business, it means structuring your pricing so that:
You get paid proportionally to the results you deliver
You take on meaningful risk alongside your customer
Your incentives are perfectly aligned with their goals
In its purest form, this looks like performance-based pricing. You get paid based on measurable outcomes rather than your time or effort.ah
When your customer wins big, you win big. When they win small, you win small.
The underlying message to your customer becomes: "I'm so confident in what I deliver that I'm willing to bet my compensation on it."
This isn't just ethical. It's strategically brilliant. It instantly differentiates you from competitors who insist on getting paid regardless of results.
Real-World Examples Beyond Tech
The tech world has embraced this model for years. SaaS companies offer success-based pricing tiers. Growth marketing agencies charge per lead or take a percentage of ad spend.
But what about other industries? Can a local business, service provider, or physical product company implement this approach?
Absolutely. And the ones who do often dominate their markets.
Service Businesses
Personal Training: Instead of charging $75 per session, a trainer might offer a base rate of $40 plus $500 for every 5 pounds of fat loss achieved. The trainer is now directly incentivized to get results, not just show up.
Interior Design: Rather than a flat design fee, charge a smaller upfront fee plus a percentage of the home value increase after the renovation (verified by an independent appraisal).
Wedding Photography: Offer a base package with a guarantee: "If we don't deliver at least 100 photos you absolutely love, you only pay 50% of our fee."
Product Businesses
Supplements: Instead of just selling a bottle of sleep supplements, offer a "Sleep Transformation Package" with sleep tracking. If the customer's average sleep quality doesn't improve by 20% within 30 days (measured by the tracker), they get their money back.
Mattress Companies: Beyond the standard trial period, offer a performance-based refund scale tied to sleep improvement. "Sleep 20% better in 30 days or get 20% back—guaranteed."
Skincare Products: Create before/after tracking with standardized lighting and offer partial refunds based on a sliding scale of improvement.
Professional Services
Business Coaches: Instead of charging $5,000 for a coaching program, charge $2,000 plus 5% of revenue growth for the next year.
Accountants: Charge based on tax savings generated rather than hourly rates. "We only take 20% of whatever we save you compared to last year's return."
Marketing Consultants: Rather than monthly retainers, charge a base fee plus a percentage of revenue growth attributed to your marketing channels.
The Magic of Removed Objections
The most powerful thing about skin-in-the-game pricing isn't just better conversions. It's the complete removal of the biggest objection in any sale: risk.
When your prospect realizes they only pay for results, the mental calculus changes from:
"Is this worth the risk?"
To:
"Do I want these results?"
The conversation shifts from convincing them to trust you to simply confirming they want the outcome you provide.
Sales becomes consultation instead of persuasion.
The customer's internal dialogue transforms from skepticism to excitement:
"Wait, I only pay if it works? And they're taking on risk along with me? This is a no-brainer."
This psychological shift is worth more than any sales tactic or closing technique.
How To Implement This In Your Business
Ready to restructure your pricing? Follow these steps:
1. Define Clear, Measurable Outcomes
You can't tie payment to results without clear metrics. Ask yourself:
What specific outcomes do my customers want?
How can we objectively measure these outcomes?
What timeframe is reasonable for seeing results?
Be ruthlessly specific. "Better health" is too vague. "5% body fat reduction in 60 days" is specific and measurable.
2. Create a Two-Part Pricing Structure
Most successful skin-in-the-game models include:
A base payment that covers your basic costs
A success fee tied directly to results
The base payment reduces your downside risk while the success fee creates upside alignment. This isn't about working for free—it's about structuring compensation to reflect confidence.
3. Set Meaningful Stakes
Your skin in the game must be meaningful to be credible. Token gestures don't work.
If you charge $2,000 for a service and offer a $100 rebate for missed targets, that's not skin in the game. That's a marketing gimmick.
Your downside risk should be significant enough that you feel it.
4. Build Tracking and Verification
Without proper tracking, results-based pricing falls apart. You need:
Clear baseline measurements before starting
Regular progress tracking during the engagement
Final verification that both parties trust
For businesses selling physical products, this might mean partnering with apps that track relevant metrics or building your own tracking system.
5. Test Before Full Deployment
Don't completely abandon your existing pricing overnight. Test your new model with a segment of customers first. This gives you room to refine the mechanics before going all-in.
Real Success Story: The Fitness Studio Revolution
In 2018, a small fitness studio in Minneapolis was struggling to compete with cheaper gyms and trendy fitness concepts.
Instead of lowering prices or chasing trends, the owner implemented a radical pricing model: the "Transformation Package."
Here's how it worked:
Members paid a modest monthly membership ($79 instead of the standard $129)
They committed to a 90-day program with baseline measurements
At the end of 90 days, they paid a "success fee" based on their results
$50 per pound of fat lost
$25 per percentage point of strength gained
Members who hit their stated goals received the next 90 days free
The results were stunning:
Member retention jumped from 68% to 94%
Referrals increased by 340%
Average revenue per client increased by 70% despite the lower base rate
But the most interesting part? Members who paid more under this model were happier. They valued their results more when they paid in proportion to their achievements.
The owner reported that his business completely transformed from "selling hope" to "selling results," and his members became walking testimonials for his approach.
The Real Reason Most Don't Do This
If skin-in-the-game pricing is so effective, why isn't everyone doing it?
Because it forces you to actually deliver.
You can't hide behind fancy marketing or sales tactics. You can't blame "unrealistic customer expectations" when you don't get results.
Your income becomes directly tied to your ability to create value.
For many businesses, that's terrifying. It exposes mediocrity. It reveals whether your promises are legitimate or just marketing hype.
But for entrepreneurs who truly believe in what they offer, this model is liberating. It lets the marketplace reward you fairly for the value you create.
It's much easier to charge premium rates when both parties know you only get paid for delivering.
Beyond Pricing: The Full Alignment Model
Skin-in-the-game pricing is just one aspect of full business alignment. The most trusted businesses take this philosophy beyond pricing to every aspect of their operation:
Transparent Processes: They show their work, not just their results
Shared Risk Ventures: They create partnerships rather than vendor relationships
Open Recognition of Limitations: They openly discuss what they can and cannot deliver
When you structure your entire business around alignment, pricing becomes just one expression of a deeper philosophy:
"We succeed together or not at all."
The Future of Business Is Aligned
We're entering an era where trust is the most valuable currency in business.
Generic products and services are being commoditized. Information is abundant and free. The differentiator is increasingly becoming who customers can trust.
Skin-in-the-game pricing isn't just a sales tactic—it's a business philosophy that builds trust at the structural level.
Those who embrace this model now will find themselves with an increasingly powerful advantage as markets continue to evolve.
Think about your own buying habits. Who do you trust more?
The coach who charges $5,000 regardless of results?
Or the coach who charges based on how much they help you grow?
The answer is obvious. And it's the same answer your customers will give.
Getting Started Today
You don't need to completely reinvent your business model overnight. Start with a single offer or product line.
Choose one service or product with clearly measurable outcomes
Create a pilot program with skin-in-the-game pricing
Present it to your best existing customers first
Use their feedback and results to refine the model
Roll it out more broadly when you have proof of concept
The key is starting. Even a small step toward aligned incentives creates a powerful shift in how customers perceive your offering.
And once you experience the difference in your sales conversations—the ease, the trust, the excitement from customers—you'll never want to go back.
When you align your success with your customers' success, everyone wins.
And isn't that how business should work?
Thank you for reading.
– Scott