Adding a Success Fee to Fee Structuring
Consider adding a success fee to projects with small budgets with potential for savings
As you have seen, not all projects are created equal when it comes to how to quote fees for a project. The structure that is right for your situation will also depend on many factors. Typically, projects such as assessments and strategic planning can be done on a flat-fee basis. When there is a potential for a significant cost savings or revenue increase and the company has a small budget, adding a success fee combined with a lower-than-usual rate is something to consider. The right executive combined with an arrangement that fits the situation and client’s budget can often make a big impact on the success of a company.
If you are working with an intermediary, remember to take into account the revenue split when you determine your pricing. Because they are taking on more supporting activities and work, you are able to spend more time working and less time doing business development.
To help illustrate all of the above, let’s use Denise as an example. Denise’s base hourly rate is $200 per hour. Two years ago, her base hourly rate was $175 per hour, but since she got so busy and was taking on a number of larger, new clients, she took that as an opportunity to test market a higher rate. Recently, she was referred to a client by someone in her network. After meeting with the CEO, Denise determined this was the type of engagement she loved. It was a fast-growing company with a young team and a technically-oriented CEO. She really wanted to work with them. The company was going to need her at least three days a week to start, then likely at least one to two days per week for about six months. Using her $200 per hour base rate, she took into consideration that she was now looking at charging daily instead of hourly. The project would keep her busy for the next six to nine months doing the type of work she loved. She also knew the company was cash-flow challenged due to its rapid growth. Denise came up with a daily rate of $1,200 and a success fee of 20 percent of her invoicing if the company reached its sales and gross margin goals at the end of the year. The CEO was thrilled to have someone of Denise’s caliber on board a few days a week within a budget that worked for the company.
Case Study: Getting Creative in Terms of Fees & Success Fees
Companies are looking for executives who add value to the organization. Be creative with how you can help them as an executive. Stay focused on where the company wants to go and how you can get them there; it may not be obvious right from the start. Help provide solutions, including a creative success fee tied to goal achievement if you can. It should coincide with the direction the company is headed and help to get them there.
Denise is great at understanding what her customers need, what their biggest pain point is, and focusing first on that when she can tell a client is having a tough time moving forward bringing her in to help. When Denise was just starting out, a referral partner connected her with a potential client. The CEO identified a number of issues that needed to be addressed. One of her biggest was that her team was giving her recommendations and trying to force decisions she was unsure about. She had started to question her decision-making abilities which included her confidence as a leader. Although Denise had laid out a thorough, comprehensive plan to help address all of the CEO’s needs and issues, she could tell the CEO wasn’t going to make a move.
Denise took a step back and narrowed down the scope to the number one item that could help the CEO most—reporting. A lack of information and reporting had her leading the organization blindfolded. She didn’t have enough information to question what her team was telling her. Denise adjusted the scope of the engagement solely to address this issue first. In just ten hours a week, Denise assured the CEO she would have the information, reporting, and visibility she needed in less than a month. This was an offer the CEO couldn’t say “no” to. Four weeks later, Denise’s client was so pleased with what she had done, they identified the next set of issues and needs for Denise to address. The scope was expanded and the client was thrilled.
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