Man shaking a client's hand.

Should You Charge Clients a Fixed Cost or Have Some Skin in the Game?

You say that you put in the best of your efforts, but in case your strategy does not work, I am the one left without revenue plus your consulting bill to pay. I think you should have some skin in the game.

 

This question can be faced by any consultant or agency and can serve as a deal-maker or breaker. One should tread very carefully when facing this question. Here we try to explain the various options on the table. We all know that higher risks, yield higher rewards. We will try to cover all the risks to take and are they even worth it.

 

The first option is when you do not want any skin in the game.

 

  • Going strictly via the fixed cost model.

 

This is when you are not confident of the business model and you do not want to take unnecessary risks. After all, you have salaries and bills to pay. This is our preferred choice (after not being able to reap any benefit by putting our skin in the game for one of our clients).

 

  • Fixed cost but deferred premium.

 

In the previous option, the lead wanted to negotiate with you, but you did not offer anything. That might actually turn the deal against you. In this case, you can offer discounted pricing without hurting yourself. You can start with a fixed duration for about 3 months, and then you can move to regular pricing. Sounds fair enough!

 

Now we cover the part where you want skin in the game.

 

  • Do you know the lead beforehand?

 

If you do not, then it’s better to pass on it. Businesses are built on strong ties, and most of these relationships are old ones. If you think that you are being offered a piece in your first or second meeting then it’s more of a carrot and stick approach. You are being taken for a ride. Get out of this conversation.

 

  • Are you being strong armed?

 

“That’s how the market works, you are running an outdated business model.” These are the words used against me when I met one of my clients. He was a leading book publisher in India and on the board of Directors and an alumnus of the prestigious Indian Institutes of Management (IIM). The point being discussed was the counselling of the leads to help them convert to clients. As a hybrid agency, our job is your get you qualified leads not convert them for you. This is when we walked away. You will find many such cases where the bigger businesses will have you or force you to do things their way.

 

  • Is this a variable payment or bonus payment?

 

If yes, what is it dependent on? Is the number of conversions the company makes from the leads you supply? No, don’t do it, it’s not something under your control. You only go  for a bonus payment when everything is under your control. Consider for example that you running an e-commerce store for a client. You are responsible for the technology and online marketing. In this case, a bonus payment clause makes perfect sense. In any case, you lose control over the sales cycle and you should not go for this kind of a model.

 

  • Are we talking about equity?

 

This is when things can get tricky, and this is a topic that needs separate attention and separate blog altogether, but I will try to cover some questions you need to ask.

 

How old is the business?

 

How profitable is the business?

 

What are you being brought in for?

 

What numbers are being committed to?

 

What is the current stake holding inside the company?

 

What is the roadmap of the company?

 

This is just the tip of the iceberg. Talking about equity is like opening a can of worms.

 

If you have been in these situations before, we would love to know your side of story! Feel free to contact Dignitas Digital at hello@dignitas.digital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rishi Rais