How to Get Paid!
When I first started my business, a colleague
suggested to me that I bill my clients based on the results I created for
them. It was an appealing idea at the time - after all, who wouldn't take
me up on that offer, and so long as I performed, I'd get paid. Sounds too
good to be true? It probably is. Here's an article that discusses charging
models and why being paid on results, popular as this is becoming, may
not be your best option.
I'm currently reading Alan Weiss's book
- "Million Dollar Consulting", in which he has a section dedicated
to payment models. (Highly recommended book, by the way, although I don't
agree with everything he says).
This is my interpretation of what he says:
The ways to get paid are on a spectrum from 100% up front, paid before
beginning work at the extreme left hand side to contingency fees based
on performance at the extreme right hand side i.e. you only get paid on
results and over a timeframe beyond the end of the project. In between
are situations like 50% deposit, then scheduled payments all due before
completion of the project, and 100% payable on completion etc.
He points out that your cashflow situation
deteriorates as you move from left to right. In the worst case scenario,
you may not see any return on your investment in the project until many
months after it has been completed. If you incurred expenses or hired subcontractors,
then not only would you not have any personal income, but you'd be out
of pocket as well. Most small businesses don't have the cash reserves to
fund someone else's project, and if they have to borrow, then obviously
their profit margins are eroded by interest payments. In the case of a
"one-man-band" this might be OK, if you have other income to live on in
the meantime and do not incur any costs other than your time. However,
in the UK, the major reason small businesses go under is cashflow problems,
so for most of us, positive cashflow is a necessity.
What I would add (and I don't think Alan
explicitly stated this) is that the level of risk increases as you move
from left to right. For example, if there is any kind of disagreement during
or after the project, and you haven't been paid, or have only received
partial payment, then you risk losing some or all of your fee.
If you work on a performance/results basis
then you also risk:
1. the client dragging their heels
and not creating a situation where you can get started
2. disagreements or ambiguity over what
constitutes results or performance
3. the client being unethical or downright
dishonest and not providing full disclosure of results
4. the client not using your work in the
way it was intended thus diminishing the probability of success
5. the client not being fully committed
to the project or not valuing what you do because they're not committed
to paying anything yet
6. creating an image of yourself or your
company as being "desperate" for work
On the flip side of this is the risk
to the client. Clearly, paying nothing until tangible results are delivered
is the client's lowest risk (and probably most desirable) position, and
paying the full fee up front is their highest risk position. If the client
perceives a high degree of risk in employing you for their project, then
they may take their business elsewhere or just abandon the project. Therefore
many marketers advocate reducing the client's risk in order to win business
by working on contingency fees i.e. paid on results. In this scenario,
the consultant or independent professional should negotiate so that the
rewards outweigh the risks - so that they will be paid in excess of their
standard fee by the cumulative payments based on results.
Therefore the maxim for the consultant/professionals
is to negotiate as much upfront fee as possible, in order to minimise the
risk and prevent cashflow problems. But you need to be able to do this
in a way that also reduces or eliminates the client's perceived risk (or
else you make yourself vulnerable to another risk - that of not winning
the business). Other ways of reducing the client's perceived risk include
having a good reputation, building credibility and being known as the expert,
plus adding satisfaction or money back guarantees.
You should only engage in results-based
fees if:
* the reward outweighs the risks
and hit to your cashflow
* contingency based fees are normal
in your industry
* you have spare capacity and something
is better than nothing
* you need the project to help build your
credibility and reputation
* you have agreed metrics upon which your
performance can be measured and the client is legally obligated to provide
the corresponding information
Other than that, try to stay over to
the left-hand side of the spectrum as much as possible if you want positive
cashflow and to stay in business for some time to come!
Author-Bio: Jane Hendry helps professionals,
consultants and coaches to create marketing systems that easily and consistently
attract their ideal clients. To get your free Attraction Marketing Starter
Kit please visit http://www.attractioneers.com |
