Enablers and barriers to performance-based pricing of software projects

Abstract

This article investigates the enablers and barriers to performance-based pricing for software projects in Estonia through qualitative interviews (N=7) conducted with software company leaders. Findings reveal time-and-materials pricing prevails due to flexibility, despite recognized incentive misalignments. Performance-based pricing adoption faces significant barriers, including difficulties in quantifying value, high perceived risks for both parties, insufficient trust, and restrictive procurement norms. Critical enablers involve strong client partnerships, clear value propositions, measurable outcomes, and structured risk-sharing agreements. The research offers empirical insights into performance-based pricing challenges specifically within project-based services, emphasizing trust and context as crucial for implementing value-aligned, often hybrid, pricing models.