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
Hello Mr. Chaturverdi.
Never comprise cost of your skills, talent, time and experience when providing a solution for a client. Make sure you have given your client a clear indication of your proven track record and that you prefer that he or she pay for your expertise in your field. If the client is not ready to pay you, then thank the client and move on to the next potential client. I don't be afraid to loss client, when you can easily gain another one.
1stly you are not a charity and as previous answers stated, your time and expertise are valuable. You have invested great deal of your life to come to a point where you are now.
There are two solutions to this.
One is to say no if the customer is not valuable to you.
Second is that you charge them in a different ways - but not as a cost savings share.
So, I would ask them if they would hire a "more famous" consultancy would they accept this?
Lets stay in touch,
Your question raises a question for me: What kind of cost savings are you projecting that the client might see as a result of your input? If the cost savings are substantial then sharing them with the client might result in much higher fees then the rate you were planning to charge. Are you willing to shoulder some of the risk for a potentially (much) higher reward?
Another way to structure your engagement might be to charge some fixed fee for your advice (as a base payment), and then some percentage of the cost savings. Again, the idea would be that you will make more then if you had just received your standard fee. Since you are bearing some of the risk you should also be entitled to more reward.
The bottom line is to see what you can negotiate with your client that makes the project a "win" for them and a "win" for you.
There are multiple challenge with that "pay for performance" scenario. In nearly every case and for every recommendation the client will be responsible for the implementation. If the client fails to follow through, follows through only partially or improperly, the savings are never realized and your compensation is never paid. The other serious challenge is that the accounting for the savings is usually out of your site and control adding to the danger for miscalculation and also making it easy for the client to "round off" in their own favor.
Your ability to verify the performance, the measurement and the proper payment would be the critical determining factors in this billing/payment model.
Ask if this client wants you to be a partner in his/her turnaround......You are being offered payment on a contingency type sales commission type basis. Figure out whether you want to be a partner with this company, and going forward make sure expectations are fully understood...
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.
Puneet I would suggest consideration into the relationship you want to develop with this client. One of the best parts of working independently is we have the option to tailor fees and such with each scenario a client may present. Developing that customer relationship is about how does each client fit your business plan now and forward into the future.
I would ask the client for more discussion as to the details of their position. As you seek to understand the client's position do not omit that you do have some fixed costs you need to cover and anything above that you would consider passing on to the client.
It really all leads to customer relationship building.
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.
Your clients don’t know how much work goes into doing what you do. And they don’t know how long it took you to become a capable who can create that work.
Frankly, they don’t care. All they care about is getting the job done as economically as possible.
It’s your job to charge a fair price that reflects the work you put into it.
If you don’t set your rates, clients will do it for you by telling you how much they can pay. And that’s never a number to get excited about.
Don’t ask for the client’s budget. Instead, quote an amount to your client. You can only do that when you’ve figured out your rates.
No doubt you need money for ‘now’ but for ‘sustainability’ you need reputation more than anything else. However, there’s no such thing as a free lunch. Combine these two principles and you will get the answer that will lead you to the strategic partnership with functional privileges enabling you to practice what you preach. All the best and way to go…