"I’ve just opened my own business as an independent general business consultant. A prospective client is offering me a flat rate to expand their membership over the next 12 months. They also have offered to pay me a percentage of the total number of members I sign up, and possibly a percentage of their newsletter’s on-line click-throughs.
What is the industry standard, or a current going rate, for payment for percentage of total new members, and what is the industry standard, or current going rate, for a percentage of each click-through." Travis Horel
Travis, first congratulation on opening your own business and having a quality prospect in this economy. I am going to take a look at pricing from a macro-level, and then I will make recommendations on your individual request. Getting pricing right is a challenge for most companies.
I break pricing down into three broad categories: Cost Plus; Value to Prospect; Cost Minus. Then I will add a note on competition.
Cost Plus: Is fairly straight forward with your cost plus margin. My only recommendation is take into consideration your total cost. Because you are an independent consultant your costs in addition to the traditional hourly wage, benefits, and office; also need to include covering your vacation time, sales, and marketing expenses. If you are reselling all of these costs need to be included in your numbers, in addition to your raw margin on the cost of the item.
Value to Prospect: What is the value to your prospect for your solution? Are you helping them grow their business, as in your case; are you helping them increase revenues; are you saving them money; are you helping them achieve their business initiatives / strategic plan; are you helping a buyer satisfied a personal need; or are you a cost of doing business? Note, when providing real value, you need to focus on your value to the organization and not on your costs.
Cost Minus: Is a fancy way of saying deals where you initially lose money. Start-ups need investment capital because they traditionally lose money in the early years. If you are launching a new solution, you may strategically take a loss with early adopters. You may have a loss leader for your other solutions. In this economy you may take a low margin or negative margin deals to keep your people busy. Be very careful and selective with money losing deals.
Competition: Then you have to factor in competition. Your prospect will compare you to your direct competition, indirect competition (ex. doing it themselves), and the dreaded doing nothing.
Now onto your specific question. As usual, I have some qualifying questions first: How large is your prospect? How well do you know their business? Can you easily determine which member you have directly brought to them? How many members do they currently have? How much is their offering for the memberships? Do they sell other services or products besides the memberships? What is their margin? Who currently performs membership acquisition? Is this going to be your only client for the year or are you going to work on getting more clients too? Is it just you or are you going to sub some of the work?
First the flat rate. Assuming you are at a minimum covering your costs, the flat rate is good. It sounds like they are outsourcing marketing, or at least part of their marketing to you for one year. I would make sure you have parameters around the flat rate that protects both them and you.
Second, the percentages. I really like percentages because you are risk sharing with your client. The more members you recruit the more you make and the more successful the client will be. The actually percentages are a complicated question and in my experience that not only varies from industry from industry but also from company to company. The larger the flat rate the less on the percentage and vice versa. Additionally, are you getting commissions on the first year, every year, or a set number of years. Again the more years the lower the rate and vice versa. Lastly, make sure you can document which members you recruited, or if they are outsourcing to just you, I recommend your deal include all new members, which is easier for both sides to document. I am not more specific because as you can see there are a lot of variables. Assuming you got a fair flat rate, I would start my data modeling around 7.5% and based your specifics go up or down.
Third, click throughs. This one is even more challenging because their initial goal maybe click throughs but the ultimate goal is revenue and margin. I have been involved in one click through deal, we did $25 for every bucket of 100 click throughs. Similar to memberships, how do you determine which click throughs are yours and which are from other activities.
Travis, 'Good Consulting and Recruiting’, sounds like a very exciting opportunity, let us know if you win the business and how it goes. Reader Feedback, please click the comments below to give ‘Travis' additional recommendations and I want your feedback on my response. Shaun Priest aka CloserQ
What is the industry standard, or a current going rate, for payment for percentage of total new members, and what is the industry standard, or current going rate, for a percentage of each click-through." Travis Horel
Travis, first congratulation on opening your own business and having a quality prospect in this economy. I am going to take a look at pricing from a macro-level, and then I will make recommendations on your individual request. Getting pricing right is a challenge for most companies.
I break pricing down into three broad categories: Cost Plus; Value to Prospect; Cost Minus. Then I will add a note on competition.
Cost Plus: Is fairly straight forward with your cost plus margin. My only recommendation is take into consideration your total cost. Because you are an independent consultant your costs in addition to the traditional hourly wage, benefits, and office; also need to include covering your vacation time, sales, and marketing expenses. If you are reselling all of these costs need to be included in your numbers, in addition to your raw margin on the cost of the item.
Value to Prospect: What is the value to your prospect for your solution? Are you helping them grow their business, as in your case; are you helping them increase revenues; are you saving them money; are you helping them achieve their business initiatives / strategic plan; are you helping a buyer satisfied a personal need; or are you a cost of doing business? Note, when providing real value, you need to focus on your value to the organization and not on your costs.
Cost Minus: Is a fancy way of saying deals where you initially lose money. Start-ups need investment capital because they traditionally lose money in the early years. If you are launching a new solution, you may strategically take a loss with early adopters. You may have a loss leader for your other solutions. In this economy you may take a low margin or negative margin deals to keep your people busy. Be very careful and selective with money losing deals.
Competition: Then you have to factor in competition. Your prospect will compare you to your direct competition, indirect competition (ex. doing it themselves), and the dreaded doing nothing.
Now onto your specific question. As usual, I have some qualifying questions first: How large is your prospect? How well do you know their business? Can you easily determine which member you have directly brought to them? How many members do they currently have? How much is their offering for the memberships? Do they sell other services or products besides the memberships? What is their margin? Who currently performs membership acquisition? Is this going to be your only client for the year or are you going to work on getting more clients too? Is it just you or are you going to sub some of the work?
First the flat rate. Assuming you are at a minimum covering your costs, the flat rate is good. It sounds like they are outsourcing marketing, or at least part of their marketing to you for one year. I would make sure you have parameters around the flat rate that protects both them and you.
Second, the percentages. I really like percentages because you are risk sharing with your client. The more members you recruit the more you make and the more successful the client will be. The actually percentages are a complicated question and in my experience that not only varies from industry from industry but also from company to company. The larger the flat rate the less on the percentage and vice versa. Additionally, are you getting commissions on the first year, every year, or a set number of years. Again the more years the lower the rate and vice versa. Lastly, make sure you can document which members you recruited, or if they are outsourcing to just you, I recommend your deal include all new members, which is easier for both sides to document. I am not more specific because as you can see there are a lot of variables. Assuming you got a fair flat rate, I would start my data modeling around 7.5% and based your specifics go up or down.
Third, click throughs. This one is even more challenging because their initial goal maybe click throughs but the ultimate goal is revenue and margin. I have been involved in one click through deal, we did $25 for every bucket of 100 click throughs. Similar to memberships, how do you determine which click throughs are yours and which are from other activities.
Travis, 'Good Consulting and Recruiting’, sounds like a very exciting opportunity, let us know if you win the business and how it goes. Reader Feedback, please click the comments below to give ‘Travis' additional recommendations and I want your feedback on my response. Shaun Priest aka CloserQ
Comments
Great post! You have yet again covered just about all the bases on this important questions for a start-up consultant.
Thanks,
Will Fultz