Outcomes-based financing: what is and why does it matter for K12 EdTech?
By Professor Natalia I. Kucirkova, Centre Director
Outcomes-based financing (or results-based financing) ensures financial resources are used to achieve meaningful, long-term impacts, rather than just funding activities or outputs. In K-12 education, EdTech tools aim to improve learning and teaching, but their impact on actual learning outcomes has not been thoroughly evaluated in the past. This is partly because isolating the effects of a single tool in a complex classroom environment, where multiple tools, resources, and teaching strategies interact, is challenging. However, as the edtech market grows and becomes increasingly saturated, schools and policy-makers are more discerning about which tools to adopt. This makes outcomes-focused research with various EdTech tools an increasingly relevant and urgent issue, and gives outcomes-based financing a new potential to drive accountability and effectiveness in the EdTech sector.
What is outcomes-based contracting?
Outcomes-based contracting, also known as outcome-based performance management or payment by results, is a funding approach that links payments to measurable, tangible outcomes. As a form of results-based financing, this model ensures that funding is contingent on achieving predefined goals rather than simply delivering services. Unlike traditional funding models that focus on immediate outputs (eg number of users by a platform), outcomes-based contracting aims to ensure that providers are incentivized to deliver real, lasting improvements in education (eg increase in children’s literacy scores over a year after using the tool). It directly shifts the focus from outputs to outcomes - a key to ensuring that EdTech tools lead to meaningful, measurable improvements in learning.
A common method for large funders to implement outcomes-based contracting is through impact bonds—a subset of outcomes-based contracts—where private investors provide upfront capital to cover service delivery costs.
Put simply, for EdTech providers, outcomes-based contracting is a commissioning approach that focuses on achieving predefined learning outcomes rather than specific service activities. This model gives EdTech service providers the flexibility to innovate and adapt their product to reach the desired results, with payments being contingent upon successfully meeting these outcomes.
Outcomes-based contracting in EdTech
Outcomes-based contracting has been advocated for the EdTech sector as a way to bring transparency, and accountability to an increasingly complex and opaque market. In USA, despite a rapid growth in the industry, districts often encounter opaque pricing structures, leading to drastic price discrepancies for the same tools across different schools. Digital Promise has been advocating for flipping the traditional approach by focusing on outcomes and aligning them with appropriate tools, resources, and services. In such a model. districts, as de facto impact investors, seek organizations that have a proven, measurable, and effective approach to improving student learning outcomes.
While outcomes-based contracting may be new to the EdTech sector, and may be mainly motivated by the need for better budgeting and decision-making for schools, it has been a key component of several education funding approaches, particularly in Global South countries. One notable example is The Education Outcomes Fund (EOF), which employs an innovative outcomes-based contracting model in several countries and partners with governments, donors, impact investors, and educational organizations to establish clear and measurable objectives. Payments are made only once these predefined outcomes are achieved, ensuring that funding is directly tied to tangible social improvements and creating a more effective, results-driven education system. A 2022 World Bank report on impact bonds in education in low- and middle-income countries recommends that international development agencies continue tying payments to outcomes, based on the finding that education impact bonds have largely met the specified outcomes.
Problems with outcomes-based financing
Outcomes-based financing is an appealing solution to the challenge of EdTech's traditional lack of focus on measurable outcomes. However, it is not a magic bullet, and there are known and well-documented issues with outcomes-based contracting, especially in other sectors like social impact and healthcare, where it has been applied with mixed results. These challenges have led to significant pushback against the approach, and its implementation has often been complex and contentious.
A key criticism, well-documented in various sectors, is the risk of creating the so-called “perverse incentives”. This occurs when providers focus solely on easily measurable outcomes at the expense of broader service quality. In education, this can lead to “teaching to the test,” where the emphasis is on rote memorization or procedural steps rather than fostering a deeper understanding of the subject matter. While students may score higher on tests, they may not actually comprehend the content. In essence, it prioritizes what is easily measured over what truly matters for learning.
There is also the risk of "impact washing", where providers may showcase impressive performance data without actually creating real, lasting impact. Other sectors have shown evidence of unintended consequences, such as "cherry-picking," where certain favourable data is emphasized while unfavourable aspects are excluded, or even where providers have been manipulating performance data to game the system.
Achieving outcomes in learning is inherently complex, influenced by numerous interdependent factors. Focusing solely on one or two outcomes can be problematic, as it may incentivize actions that prioritize those outcomes while neglecting others, potentially leading to no or even negative impact in other important areas. This complexity underscores the importance of a holistic approach that accounts for the broader educational experience.
Good design of an outcomes-based approach is critical in mitigating the risks of gaming the system or perverse incentives, ensuring that the focus remains on holistic, long-term educational goals.
Collaborating with experienced organizations in education outcomes-based sector (eg Go Lab or NORRAG) is essential to identify potential issues before they arise and build frameworks that foster genuine impact. We also recommend working in close partnership with local communities to ensure that the focus is not just on what’s scientifically or theoretically perceived as important to measure, but on what truly matters in advancing education in a given context.
Our Centre and outcome-based EdTech
At our Centre, we have been working with several funders to implement outcomes-based contracts. Our role typically involves providing technical assistance, where our researchers support both the funders (or impact investors) and the investee (the EdTech company) in achieving desirable outcomes. This can range from advisory services, where academic researchers offer recommendations on which outcomes are most suitable for the tool’s target, or which standardized outcome measures would demonstrate measurable and comparable progress in a given timeframe of implementation.
Our support has also been on ensuring that KPIs are rooted in academic and empirical evidence, leveraging our extensive network of 1,200 learning scientists, coaches and experts, who offer precise domain expertise relevant to specific learning outcomes. This means that the choice of outcomes is not only aligned with what the tool can deliver (based on a comprehensive review of the tool) but also informed by the best and latest science.
To ensure that selected EdTech organizations receiving impact-linked finance contribute to improved learning or employment outcomes, our process is tailored to their specific needs. Typically, it includes establishing a Theory of Change with the organization, reviewing the company’s data infrastructure and governance (since we cannot use data for measuring outcomes if it is not processed ethically, this step is crucial), assessing the current evidence of their intervention, and reviewing the impact measurement process. We also support the creation of baseline data and assist in building impact dashboards. In longer-term partnerships, our researchers support the EdTech organisations’ capacity to accurately analyse the data they collect (typically with their internal data scientists or staff responsible for research). With the product teams, we often work to align the assessments done by the platforms (such as users’ engagement data and learning progress) with psychometrically valid assessment measures. This means that data collected by the platforms can be also used for evaluation purposes of the outcomes they achieve over time. Finally, we conduct actual data analyses to model how an external evaluation would be performed. This step is important for companies to monitor their impact over time and understand how they are improving (or not).
Our researchers support both the funders (or impact investors) and the investee (the EdTech company) and we strongly believe that a partnership model is essential for outcomes-based financing in EdTech to truly become a solution to improved learning for all students.
Cite this article as: Kucirkova, N. (2025). Outcomes-based financing: what is and why does it matter for K12 EdTech?, Insights: International Centre for EdTech Impact.