Question

Topic: Strategy

Can You Think Of Best Way To Evaluate?

Posted by adammjw on 6/1/2005 at 10:57 AM ET 500 Points
Dear All,

Some of you might have already noticed that I have been working as consultant to a client trying to figure the best way out for his successful growth.Now that we are close to working out a viable strategy we start to negotiate my fee.These days I'm consulting to him based on monthly arrangement.As I have come with a new solution for his business the idea cherished by the client is to link my remuneration to the success of the the new company roll-out.I fully understand his position.The question is how to gauge it and affix real added value to the solution.Either to base it on actual ROI he gets from his current business and see what increase was achieved thanks to my services? Or maybe adopt some more to the point methodology?

I will he more than happy to get your best leads.

Regards

Adam
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RESPONSES

  • Posted by adammjw on 6/1/2005 at 11:15 AM Author
    Bill,

    Thank you for your words.I do share same doubts but it's also part of my job to try to conceive the unconceivable and as the idea of the company transformation and new roll-out is mine I have to take the responsablity and face the music.Therefore it's no wonder that is the client's expectation.The only thing is to find a fair way of gauging it, I think.

    Regards

    Adam
  • Posted by Pepper Blue on 6/1/2005 at 11:25 AM Accepted
    Hi Adam,

    The simple and still fair way is to determine what you would normally charge him with a non-performance based contract and look at what sales are projected to be in the next 3, 6 and 12 months and tie an escalating percentage to this that is slighty more than what you would have othewise charged.

    Is it necessary to affix to ROI and not just sales? Did you promise a positive return on marketing investment in x period of time, or just an increase in sales (revenue)?

    With the above you are then compensated at your fair-market value plus a little more for the risk (although I understand you understand and accept this risk) and your client is paying only slightly more than he otherwise would have with no risk.

    I hope that helps.

  • Posted by michael on 6/1/2005 at 11:35 AM Accepted
    Adam,

    What we do is based on one of 3 options:

    A) A percentage of the profit (from 1-10%). This works well when you are starting out a newer venture
    B) A percentage of the increase in sales (5-10%). This only works with our customers who have a sound knowledge of their business
    c) A flat amount per new customer. This works well when our clients are low on cash.

    In either case work hard to establish a baseline, either profit or total sales. That's the only way you'll get to a real ROI. If the customer can't get there, he needs you more than ever!

    Good luck,

    Michael
  • Posted by antonio.alexandre on 6/1/2005 at 11:36 AM Member
    Hi

    IT people are used to negotiate large complex outsourcing systems, where you charge a fee and agree with the customer some indicators (Service Levels). If you overperform, you charge more than the agreed fee(s), if you underperform you charge less.

    My advice is for you to build a composite indicator, including all the factors (or at least the most important ones) you agreed to improve. It is important that they are explicitly stated in a way that misinterpretations don't occur. If you decide to approach that issue in a Service Level Agreement-fashion it is also important that you clearly state where you start to under- and over-perform (for every factor)

    If you want to discuss this a little further you can reach me at antonio.alexandre@agora.com.pt
  • Posted by adammjw on 6/1/2005 at 11:44 AM Author
    Tim,

    Many thanks for your input.The total concept will be put into practice within 9-12 months as some major reshufflings are still necessary.No, I have not taken any ROI-related obligation upon myself.The main idea behind the whole concept is to increase sales over a period of a couple of years. Does it affect your concept or not at all? Pls note that the concept is supposed to bring fruit within 2-3 years.So perhaps better to base on sales percentage increases on yearly basis?
    Many thanks again.

    Regards

    Adam
  • Posted by adammjw on 6/1/2005 at 12:13 PM Author
    Michael,

    Great and simple ideas Thanks.
    A -cannot be applicable as this is not a start-up.
    C- the customer is not that low on cash so I would also skip it.
    B- seems to be the most workable here.The client has a sound knowledge of his core business.What he misses is better internal structure and communications and a way more client-focused marketing.
    The main idea is to increase sales( gross margin is fine) and company's impact on the market.

    Thanks again.

    Regards

    Adam
  • Posted by adammjw on 6/1/2005 at 12:26 PM Author
    Antonio,

    Many thanks for your input.I have my fears as to going for a very complex evaluation system based on multi-factoring.I'm afraid the process of negotiations could take too much time.Besides the prospect could find it too complicated.Therefore a simple "performance" or"non-performance" system is on my mind.

    Thanks again,

    Adam
  • Posted by adammjw on 6/1/2005 at 1:22 PM Author
    Tim,

    Wow! Spellbinding concept that of exit clause.The intention is to sign a contract for 3-5 years.Any well-grounded idea of a buy-out amount?

    Regards

    Adam
  • Posted by adammjw on 6/1/2005 at 1:44 PM Author
    I would like to thank each one of you for invaluable and great answers I have received. I want to give special words of appreciation to Tim Smith,Tim Pepper and Michael.I found your input to be most relevant in my case.
    It was great exchanging views with you!

    Adam

    PS Tim if you could come up with some ideas as to buy-out clause in terms of value applicable in such cases I would be more than happy to hear from you.If possible pls use my e-mail address: adamcustom@hot.pl
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