Whenever I’m training a new student to start a home business as a marketing
consultant and they start asking me about setting up “contingency fees” (i.e. getting paid on the percentage of sales versus a fee) I always have to spend an hour trying to talk them out of wanting to do it.
At least at first.
Why?
There are several reasons:
One is you’re in a “partnership” with the business owner. You’re now relying on his
honesty and his trust and his capability of doing business, all of which are
completely outside your control. And while everything may look great “on paper”,
you could find yourself putting a lot of your time and energy into a business and not
get paid a penny on your efforts.
Plus, even if things go good at first, there’s a good chance the things you like will
not keep working the way you want them to work.
And besides that, doing a contingency deal changes the whole relationship between
you and the client.
Especially when big money is involved.
Things may go fine when profits are modest. But when big and sudden success
happens (usually as a result of you, the consultant) clients who used to be rational
and honest can all the sudden start acting funny, trying to justify doing things you
didn’t agree on (especially when it comes to paying you.)
Now don’t get me wrong here.
I’m not saying you should steer totally clear of these contingency deals, as they can
quickly make you a lot of money you wouldn’t have seen otherwise. In fact,
sometimes just a small “tweak” to a company’s marketing and sales can yield huge
windfalls of profits. And if you have a contingency deal, you will get a nice taste of
those profits.
But I would never recommend someone just starting out going in on a pure
contingency basis. You’re much better off charging a flat fee first, and then, as you
work with the client and they work with you, you can both find out if you’re going to
work well together.
In other words, let the deal evolve into a contingency deal. You’ll be much better off
and avoid some of the nasty pitfalls I see so many consultants — marketing and
otherwise — fall into.