We’ve written about this topic before, when Chris Steer participated in a meeting with a potential client that offered us a ‘double or nothing’ payment arrangement contingent on the outcome of lobbying work the potential client hoped we would complete on his behalf.
We declined the offer because such fees are banned by jurisdictions in which we would have needed to lobby, and even in jurisdictions and at levels of government where it is not banned, contingency fees and commissions do not factor into our approach to business.
In the last month we’ve had some pretty interesting commission-based remuneration offers for services made, that in each case would have paid multiples of what the usual fee for service compensation model would pay. In one, it led to the loss of the opportunity, but in the other, it led to negotiations in line with our expectations to be paid by billable hours or a retainer based on anticipated project costs.
Beyond the legal and ethical considerations of commission or contingency payments there is also a basic question of fairness. The degree of difficulty for us in assisting a client in increasing their market share or procurement opportunities isn’t measureable as a percentage of their business and very often such a deal would result in a far greater financial reward for us than billing hours or a retainer would. Certainly there is a difference in the amount of work required to generate procurement opportunities of $100 million as opposed to $1 million, but the difference of intensity required between those two is not 100 times. So why should we be paid like it is?
That said, I am sure there are some in business, who would say ‘More money for me? That’s great!’ I would share the sentiment, if I felt it to be a fair trade. If it isn’t a fair trade, both sides won’t remain happy with the agreement once the rain has been made, and that’s bad news for everyone.
My view is that potential clients suggest these types of arrangements because of bad experiences with other firms or contractors. They see a commission as a tool to guard against paying for no result on the negative, or to incentivize ongoing good work, thinking that the firm will be more invested in the outcome if they own a piece of the success.
By taking a client on we are invested in the outcome, because success leads to more opportunities to find success for new and existing clients. That is what we focus on, on all accounts – winning, for winning’s sake and because we know our value is entirely tied to the outcome, anyway.
On the money side, we’d rather be paid on time for the value of our time, than cut into your margins and increase the cost of your sales by a fixed amount over the course of our relationship.
A key consideration when hiring a firm and structuring an arrangement is the importance of their perspective as an outside advisor and service provider. A healthy degree of interest in a client’s success and a strong dose of independence brings a clearer head to the table that is better able to keep that outsider’s perspective that is so critical when positioning a brand, idea or cause for success. That is one of the more important distinctions between hiring a person to join your team as an employee and hiring a firm to work with your team as a service provider.
A client offering a commission is already admitting the possibility of failure. We choose our clients because we want them to win.