How to Price Your Water Tech Pilot - Free, Paid, or Shared-Savings

Here’s the most expensive sentence in water tech sales - “Let’s start with a free pilot to prove it out.”

A water tech founder closes a pilot agreement with a mid-sized utility after eight months of patient relationship work. The pilot will run for nine months, will require two onsite visits per quarter, will consume roughly fifteen percent of the founder’s engineering bandwidth, and will produce a single performance report. The utility is paying nothing. Both sides shake hands feeling like a milestone has been reached. Twelve months later, the pilot has produced a clean data set, a generally positive operator review, and zero revenue. The utility has not budgeted for follow-on work. The founder is now raising a bridge round.

A pilot feels collaborative, low-friction, and obvious. It is also one of the most reliable ways to spend a year of company runway producing a reference that does not convert. The pricing model on a pilot is one of the most consequential commercial decisions a water tech founder makes, and it gets made far too quickly, far too informally, and far too often in the utility’s favor.

This post is about the three pricing structures founders actually use for utility pilots, where each one fits, what each one costs you when it goes wrong, and how to think about choosing between them.

Why pilot pricing matters more than founders think

Pilots in water are expensive on both sides. A utility allocates resourcing like operator time, treatment capacity, control system access, and a measurable amount of political capital. A vendor allocates equipment, engineering hours, travel, and opportunity cost. The total cost of running a meaningful pilot at a single utility is rarely less than $50,000 of vendor effort and is often well above $200,000 once everything is counted. For a seed-stage company with eighteen months of runway, two free pilots can be the difference between Series A and a down round.

The right pricing model signals seriousness. A utility that pays for a pilot, even a small amount, has internal alignment that a free pilot rarely produces. Procurement was likely involved and a budget code was assigned. A scope of work was reviewed. Someone signed a purchase order. These signals matter when the pilot ends and the conversation turns to follow-on procurement, which is the moment most pilots quietly die. The pilot to procurement transition is hard enough on its own; starting from a free pilot makes it considerably harder.

Pricing model also shapes what the pilot actually measures. A free pilot tends to drift, because there is no commercial incentive on either side to keep it tight. A paid pilot has a statement of work, a deliverable, and a calendar. A shared-savings pilot has an instrumented baseline and a measurement protocol, because both sides need them to settle the bill.

Option one: the free pilot

Free pilots are still the most common structure in water tech and they can be the right answer… BUT in narrower circumstances than founders typically assume.

The case for a free pilot is real in two situations. The first is when a vendor genuinely needs reference data at a scale and rigor that no utility will pay for, and the trade is data access for installation cost. This is most defensible for early companies with a single hero customer and no operating record at all. The pilot exists primarily to produce something the company can sell against everywhere else, and the host utility’s value is the operating environment, not the procurement signal.

The second is when a strategic relationship justifies the spend. If the host utility is a top-tier national reference (a major metropolitan water system that other utilities benchmark against, a known early adopter whose name carries weight in industry trade press, and/or a utility whose engineering staff routinely present at WEFTEC and AWWA’s ACE or regional conferences), the marketing return on a successful pilot can outweigh the cash. The relevant question to ask before signing is whether the utility’s name and the resulting data, in the hands of your sales team, will produce more pipeline than the equivalent spend would have produced through paid pilots elsewhere. Sometimes the answer is yes. It is not yes by default.

Outside those two cases, the free pilot tends to fail in predictable ways.

The most common failure is what the industry sometimes calls “pilot purgatory.” The pilot completes, the data looks reasonable, and the utility says some version of “great, we’ll consider you for the next project.” That project project may be three years away, may involve an engineering consultant who has never heard of the vendor, and may end with a specification that names a competitor. The pilot produced no commercial outcome, just a generally positive reference and a year of vendor effort.

The second failure is scope drift. Without a contract that ties payment to a deliverable, the utility’s natural tendency is to ask for more. More test runs, additional water quality conditions, longer monitoring windows, expanded reporting. None of these are unreasonable individually. Collectively, they extend the pilot indefinitely. A nine-month pilot becomes an eighteen-month pilot becomes a two-year R&D engagement that ends when the utility’s lead engineer takes another job and the project quietly evaporates.

The third failure is the buying signal problem. A utility that has spent zero dollars on a vendor, even after a successful pilot, has not actually been through procurement. The systems, signatures, and political alignments that have to fire for a real purchase have not fired. When the time comes to write a check at scale, the entire procurement machinery encounters the vendor for the first time. That moment is brutal, and the conversion rate is poor. The work of understanding how utilities make buying decisions starts with recognizing that no part of that machinery is exercised by a free pilot.

A free pilot, when it is the right answer, should still be structured carefully. This includes a scope of work with a fixed end date, a defined deliverable, and a named utility champion who (ideally) has agreed in writing to participate in a published case study. Even better if you can include a non-binding letter of intent for follow-on procurement contingent on performance. None of these guarantee a commercial outcome, but together they raise the conversion rate substantially over the handshake-and-hope version that most free pilots actually run on.

Option two: the paid pilot

A paid pilot is what most founders should default to most of the time. It is also what most founders are most reluctant to propose, because they are afraid the utility will say no.

The fear is misplaced. Utilities pay for pilots routinely, especially mid-sized and large ones with mature engineering departments. The price points are smaller than founders sometimes imagine, but the structure is what matters, not the absolute number. A pilot in the $25,000 to $150,000 range is uncontroversial inside most utility capital or operating budgets, particularly if the work product is technically meaningful and tied to an internal decision the utility was already going to make.

The right framing for a paid pilot is that the utility is buying a study. It is paying for instrumentation, data collection, analysis, and a written report. The vendor’s product is the platform on which the study runs, but the deliverable the utility is paying for is technical insight specific to its operation. This framing matters because utilities understand and budget for studies routinely. They have line items for them and procurement pathways that handle them quickly. A pilot priced as a study fits the existing buying motion. A pilot priced as a “trial of our product” creates a procurement category the utility does not have.

The amount to charge is a judgment call, but a few benchmarks help. The fully loaded vendor cost of running the pilot is the floor; selling below cost is a transfer of capital from the vendor to the utility, dressed up as commercial activity. The utility’s typical study budget for similar engagements is the ceiling; charging meaningfully more than the going rate for a third-party engineering study makes the pilot harder to scope into existing budgets. Within that range, the price should reflect the engineering rigor of the deliverable, the duration of the engagement, and the value of the technical question to the utility’s planning. A pilot that produces a report informing a $30 million capital decision can defensibly cost more than one that produces a report informing a $300,000 chemical optimization.

What a paid pilot should include is structurally important. A clear scope of work with a fixed deliverable, milestones tied to payment, a defined end date, and an explicit clause about what happens at the end of the pilot, including the conditions under which the utility would convert to a production purchase. The last clause is where pilots routinely fail to convert; the contract is the right place to address it, before the pilot starts, while everyone is still aligned and friendly.

A paid pilot also has a beneficial second-order effect. Procurement has now seen the vendor. The vendor now exists in the utility’s system as a known supplier with a known contract record. The political and administrative work of converting to a production agreement has been started, not deferred. This compounds in ways that are hard to model on a spreadsheet but show up clearly in the conversion data over time.

The most common objection to charging for a pilot is that the utility cannot or will not pay. Sometimes that is true. More often it is a sales problem rather than a budgetary problem. A utility that cannot find $50,000 to study a technology decision worth tens of millions in capital is signaling something about its own seriousness, and that signal is worth listening to.

Option three: shared-savings and outcome-based pricing

Shared-savings is the structure that comes up in every founder pitch and almost never closes in actual water utility procurement. It deserves its own honest treatment, because the gap between how attractive it looks and how rarely it works is genuinely large.

The premise is appealing on both sides. The utility pays only if the technology produces a measurable benefit and the vendor captures upside proportional to the value created. In theory, risk is shared and incentives are aligned so that the economics look like a win-win on the slide.

In practice, the structure runs into several walls.

The first wall is measurement. Shared-savings requires an instrumented baseline that both sides agree represents what would have happened without the technology, and a measurement protocol that isolates the technology’s contribution from every other variable. Water systems are highly seasonal, depend on weather and source water quality, and are operated by humans who change procedures over time. Establishing a clean baseline takes months of historical data and frequently requires investments in metering and SCADA changes that the utility was not planning to make. Disagreements over measurement are the most common cause of shared-savings deals collapsing during execution.

The second wall is procurement. Most U.S. water utilities are public entities that procure through competitive bidding processes governed by state law. The procurement code typically assumes a defined unit price, a defined scope of work, and a defined contract term. Shared-savings contracts that pay a percentage of an unmeasured future benefit do not fit cleanly into these procurement codes. Outside counsel often spends months on the contract, and the resulting structure is heavily caveated. Investor-owned utilities have somewhat more flexibility, but the procurement process is still designed around fixed-price scopes. The structural differences between IOU and municipal procurement bear directly on which utilities can practically execute a shared-savings contract.

The third wall is the time horizon. Many water technology benefits accrue over years. A leak detection program that prevents three main breaks over two years of operation has produced enormous savings, but quantifying them in the contract year requires forensic comparison to a counterfactual. Both sides often run out of patience before the savings are unambiguous, and the contract gets renegotiated into something more conventional.

The fourth wall is internal accounting. Utilities account for capital and operating expenditures separately, with separate funding sources and separate political constituencies. A shared-savings contract that pays from operating savings reduces the utility’s apparent operating cost in one budget year, which the rate base may then claw back in the next rate case. The financial logic gets tangled, and the financial staff often push back on contract structures that produce volatile or hard-to-classify obligations.

There are real exceptions. Energy-related shared-savings contracts, where the utility is paying an energy services company for guaranteed reductions in pumping or aeration energy, have a long track record and a well-developed contracting framework, including measurement and verification protocols defined under federal energy savings performance contract precedents. Non-revenue water programs sometimes use shared-savings structures with private water companies, where the contracting authority is more flexible. Specific large municipal authorities, particularly those that have publicly committed to performance-based contracting as a procurement strategy, will execute these deals.

For the typical water tech founder, the right approach is to treat shared-savings as a structure to graduate into rather than to lead with. Win the first three or four utilities on paid pilots with conventional follow-on procurement. Build operating data that lets you defensibly price a shared-savings contract. Then, when the right utility raises its hand and the right project size justifies the contracting overhead, you have the credibility, the data, and the operating record to make it work.

A shared-savings contract proposed by a founder with no operating reference is almost always a tell that the founder either does not understand the procurement environment or could not get a paid pilot signed. Sophisticated utility staff read it that way. The structure is real, and it can work, but it is not an entry-level instrument.

How to actually choose

The right pricing model for a specific pilot is a function of three variables: where the company is in its operating record, what the host utility is willing to pay for, and what the pilot is supposed to accomplish commercially.

A pre-revenue company with no operating reference, sitting across from a high-prestige host utility, with a strategic interest in producing a marquee case study, can defensibly run a free pilot. The trade is commercial value for the data and the name. Both sides should understand the trade and structure the pilot accordingly.

A company with one or two operating references, ready to scale into the next set of utilities, should default to paid pilots. The pilot should be priced as a study, scoped tightly, and structured to convert into follow-on procurement on defined terms. This is where most water tech companies actually operate and where most of the bad pilot decisions get made.

A company with a meaningful operating record, working with a sophisticated counterparty on a project where the savings can be cleanly measured, can selectively use shared-savings structures. These are the exceptions, and they should be reserved for the situations where the structure genuinely fits.

The cross-cutting principle, regardless of structure, is that the pilot should be designed to produce a commercial outcome alongside the data outcome. The end-of-pilot conversion path needs to exist before the pilot starts. If the answer to “what happens if this works” is “we’ll talk about it then,” the pilot is set up to fail commercially even if it succeeds technically.

Mistakes that cut across all three structures

A few patterns recur across the failures, regardless of pricing model.

The first is treating the pilot as the sale. The pilot is a milestone in the sale, not the sale itself. Founders who exhale at the signed pilot agreement and reduce sales activity at that account during the pilot tend to find themselves at the end of the pilot with no follow-on motion in flight. The right operating mode is to keep selling throughout the pilot, building relationships with the people who will own the production decision (which is often a different group than the people running the pilot), staging the procurement work in parallel.

The second is letting the pilot’s technical scope creep beyond what the commercial frame can support. Operators inside the host utility almost always want to do more, and their additions are usually well-intentioned and technically interesting. A vendor’s instinct is to say yes, because saying yes builds the relationship. Saying yes also extends the timeline, dilutes the deliverable, and quietly burns cash. The right discipline is to scope the additions into a follow-on phase, paid separately, with its own statement of work.

The third is signing a pilot without an exit. The pilot agreement should specify what happens when the pilot ends. The conversion mechanism, the procurement vehicle, the timing of the follow-on decision, and the conditions under which each side can walk away. A pilot that ends with no defined next step almost always becomes a permanent pilot, which is to say, no commercial outcome at all.

The fourth is conflating the pilot with marketing. A pilot should produce a commercial outcome at that utility. The marketing value is a byproduct. Founders who design the pilot primarily for the case study often run pilots that are great content and weak procurement events. The strongest case studies come from pilots that converted, because converted pilots prove the technology and prove the buying motion. A successful free pilot that produced a polished case study but no follow-on order is a partial outcome at best, and selling against it is harder than founders typically expect, particularly when the content strategy is supposed to be doing real lead generation work.

What this means for the engineering consultant channel

A pilot does not exist in isolation from the rest of the buying environment. In water, most large purchases run through the engineering consultant channel, and that channel intersects pilot pricing in ways founders sometimes miss.

A pilot at a utility that the consultant respects will be looked at by the consultant during the next planning study or preliminary engineering report. The consultant will ask the host utility’s engineering staff how it went, will read the pilot report, and may speak directly with the operators. If the pilot was rigorous, well-scoped, and converted into a production purchase, the consultant treats it as a credible reference. If the pilot was loose, never converted, or ended quietly, the consultant treats it as marketing material and discounts it accordingly.

This second-order effect is part of the case for paid, well-scoped pilots that convert. The consultant network is watching, and what it sees during and after the pilot affects whether the technology shows up in the next round of specifications.

The bottom line

The default pilot pricing decision for most water tech founders most of the time should be a paid pilot scoped as a study, with a defined deliverable and a defined conversion path to production procurement. Free pilots have a place, but only when the strategic value to the company genuinely outweighs the runway cost, and only when the pilot is structured to produce a commercial outcome on top of the reference value. Shared-savings is real, but it is a structure to graduate into, not to lead with.

The pricing model is doing more work than founders typically credit it for. It signals seriousness. It exercises the procurement machinery. It scopes the work. It changes how the engineering consultant channel sees the result. It compounds, or it does not, depending on which model gets chosen and how it gets executed.

The founders who get this right tend to share a few traits. They charge earlier than feels comfortable. They scope tighter than the utility initially requests. They write the conversion path into the pilot contract. And they keep selling through the pilot, because they understand that the pilot is the middle of the sale, not the end of it.

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HydroKnowledge advises water technology founders on go-to-market strategy, including pilot design, pricing, and conversion to procurement. Get in touch if you are scoping a pilot and want a second set of eyes before you sign.