A PE managing partner reacted to our pricing slide with "anyone willing to do that really understands what we do." They were not reacting to the number. They were reacting to the model.
I was in a pitch last month. The slide about pricing landed. The managing partner across the table said, almost to himself:
"Anyone willing to do that really understands what we do."
He was not reacting to the number. He was reacting to the model.
That reaction, delivered in seven words, is the clearest articulation I have heard of why pricing is positioning.
Two Pricing Tribes
Services firms fall into two pricing tribes, and buyers know which tribe is sitting across from them before anyone opens a spreadsheet.
Tribe one: time and materials. Hours billed against a rate card. Margin protected. Risk transferred to the client. Incentive to staff heavily, move slowly, and bill consistently.
Tribe two: outcome participation. Some portion of the fee is tied to an outcome. Revenue growth. EBITDA expansion. Multiple expansion. The firm underwrites part of the result and collects only if the result materializes.
Both tribes have legitimate uses. Both tribes have clients. The two tribes signal different things.
What Each Tribe Signals to a PE Operator
PE operating partners spend their entire working lives underwriting outcomes. They raise a fund on the promise of returns, deploy it, and get paid only when the returns materialize. Their vocabulary, their incentives, and their risk posture are all outcome-based.
When they meet a services firm that bills T&M, they recognize a different species. A vendor. Vendors are useful and sometimes necessary, but vendors get managed, not partnered with.
When they meet a services firm that is willing to underwrite outcomes alongside them, they recognize a peer. Somebody whose incentives run on the same fuel as theirs. Somebody who can be brought into the room where the portfolio decisions get made.
The moment of recognition is not loud. It is the "anyone willing to do that really understands what we do" moment. It decides who sits at the adult table for the next five years of work.
PE operators hire operators. They contract vendors reluctantly.
Why Most Firms Cannot Copy This
Participation pricing sounds obvious. Most services firms should do it. Most services firms cannot.
The reason is structural. T&M pricing produces predictable revenue against a known cost base. Firms build their operating models, their hiring plans, and their partner comp around that predictability. Switching part of the revenue to participation-based introduces outcome risk into a firm structure that was built to avoid it.
This is why participation pricing has historically been the domain of operators, not consultants. Operators already have an outcome mindset baked into the firm. Consultants have an hour-sold mindset baked in, and the switching cost is high.
The firms that can credibly offer participation pricing have usually organized themselves as operators from day one. That is a strategic choice, not a commercial one.
What Buyers Actually See
When a PE operator sees a participation-pricing slide, three things happen in their head.
Credibility. "They are willing to put skin in the game. They have conviction about the outcome."
Identity. "They are operators, not consultants. They will think about this deal the way I think about this deal."
Discipline. "They will not pad the scope or sandbag the timeline, because their own upside depends on real results."
Those three reactions compound. The firm is not being evaluated on the bid. The firm is being evaluated on whether it is the kind of firm this operator wants to work with for the next five portcos.
Where Participation Pricing Breaks
It is not a universal solution. It breaks in three places.
Unclear success metric. If the outcome cannot be measured cleanly, participation pricing becomes an argument waiting to happen. Both sides need to agree on the metric before they agree on the number.
Misaligned timelines. If the outcome materializes over three years but the engagement is ninety days, the participation tail is disconnected from the work. Structure has to match time horizon.
No control over the outcome. If the firm is responsible for the outcome but does not control the inputs, participation pricing is a wager, not a model. Operators will not underwrite an outcome they do not drive.
Where those three conditions are clean, participation pricing is the highest-leverage pricing move a services firm can make.
The Reliable Group Position
We structure our engagements with an operating fee and a participation component. We underwrite what we control. We collect when the portco realizes the value we helped create.
It is not cheaper. It is aligned. And the alignment is why operating partners keep calling us back for the next portco instead of the one after.