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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!
Jane Hendry helps professionals,
consultants and coaches to create marketing systems that easily and
consistently attract their ideal clients. To get your f*ree
Attraction Marketing Starter Kit please visit http://www.attractioneers.com
The Realistic Way
to Start an Internet Business
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