How do you handle when your client asks you to share the cost savings rather then paying you the fees?

I want to ask about a specific situation I faced with a prospective client. My client asked me to be a advisor to look for problems in two of his company departments and then work as a solutionalist to implement my recomendations. This is all fine, but he wants to share the cost savings from my recomendations and not pay my fees for this activity. What would be your advice in such a case? Wish you all a good day. Regards Puneet

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11

Your intellectual property and knowledge is valuable.
First decide if you want this person as a client. Is he your ideal client? Does he have access and influence over your ideal client or target market?
If so - there may be a way to get exactly what you want from this person, and stay within his pay scale.
If he can not pay your fees upfront for this activity, than maybe he can pay it in some other way: 1) Refer paying clients to you, 2) Place your advertisements in his brochures, newsletters, facebook mentions, social media mentions and any other marketing he does for his company. 3) Introduce you to his clients as your solutionalist and recommend you to them.
Make a list of things that are valuable to you and put a $$ amount or Fair Market Value on those items. Then equate them to your normal fee for services. This way you can negotiate a far price for your services while he stays within his wage budget.
Hope this helps.

While others gave good insight, your answer is practical and actionable. It is the best answer in my humble assessment.

Thanks Laura, great ideas and like @ellen says these are practical and possible.

Laura, well said hear, hear

9

Puneet and I have been discussing thi offline. Here's my comments.

A number of factors are involved:
1. Do you have confidence that you will generate savings?
2. Do you have FULL authority to implement the change? If YES, accept the deal. If NO, walk away.
3. Will they implement the change in YOUR timeframe? If YES, accept the deal. If NO, walk away.

With NO, above, you can also position it so that the difference between the full savings and what they do get because of not implementing or not implementing timely you split. If savings means reduction of staff, are they willing to accept that?

Any time that you consider a deal like this there WILL always be a considerable bump (double) in fees to make it worthwhile. Example, let's say that your fees are $100 per hour (for ease of calculation) and you will need to spend 100 hours on the project, then your fee would be $10,000. If they want to wait to see results, it would have to be realized within one year, and only if you can get $20,000 out of the deal.

This concept was championed many decades ago by Alexander Proudfoot who founded a management consulting firm that later merged with Kurt Salmon and is now Management Consulting Group, PLC listed on the London Stock Exchange. They believed that the workforce was significantly unproductive due, not to the fault of employees, but rather the fault of poor or faulty management. They would come into a company and take over all levels of management, effectuate change, improve productivity and profitability in a short, fixed period of time and then turn the business back to company management. I had the pleasure of working on one engagement with them many decades ago.

8

Puneet, if I read this correctly the client wants to pay for results achieved. There are many considerations here so I'll choose one path and play it out. Let's assume: 1) this prospect will provide great visibility for you and is worth your while to engage with, 2) the project is well within your sphere of expertise and is desirable to you on it's own merits, 3) you are in a financially stable place and 4) building credibility is important to you.

With those assumptions in place here is a suggested offer to the prospect: propose that you do the project at a cost equal to 50% of the fee you would have charged and stipulate a % of the resulting cost savings be paid upon successful completion of the project (here you have to estimate the projected savings- you also have the potential to make more in the end than you may have with a straight fee). Unusual approach, maybe, unorthodox, not at all. It is something to consider.

Try to negotiate a low entry retainer fee (I agree with Ed's 50% of estimated total fee; yet, totally up to you) to be credited towards final success fee (which can be 100% of results achieved ... or more!). This is common practice in Financial Advisory when charging M&A or Debt or Equity raising.
I have tried it in Business Advisory with great results. Hope this helps.

Fernando I appreciate your add-on as I think you have helped to sort out my own thoughts :-)

Thanks Ed, I intend going in for a minimum fee with a % of share in savings. Your assumptions are quite close.

8

Without knowing the economics of your business, this is tough to answer. Some businesses are built totally this way, getting compensation only if they get results.

Philosophically, you are bringing expertise that is worth something AND there is a risk that they do not do everything right. I would recommend in a worst case charging a lower fee and then also a small percentage of the savings, making sure you have a nice higher upside if you get good results.

Thanks Wayne for the reply, I intend going in for a minimum fee with a % of share in savings.

8

With respect to all, We do work with clients and we do get paid base on our performance. almost in 98% of times we saved costs. in terms of payment we charge clients 50% of what we saved them. However, we agree and sign a contract before we start. I think if you have confident that you can save them, go ahead they will be happy to pay 35 to 50% of the saving. But if your client is a start-up or the revenue is under 10 million annually, I would coach them how to do it in the first place and charge them for the program and if they require consultancy service after coaching, later on , I would charge them base on Hurly or Daily rate.

8

Your customer business should not engage you for services unless it is clear that they will benefit more than it costs. Likewise for you and your business. This is the classic supply and demand model where you need to find an intersection.
Laura Rose has good suggestions of ways of viewing the costs and benefits.
While I would want to work for a share of the benefit, you then have to determine how you will compute the benefit, and how long a period of the benefit you will get.
I think you can come to an agreement, but the negotiations may take a long time. Be sure you have a well documented agreement.

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