Yesterday we were talking about getting paid on performance...
And I told you how "project fee + target-based performance incentives" is one my favourite ways of structuring these deals.
Today I want to share why this arrangement works so well and why clients go crazy for it.
First let's clarify exactly what we mean:
Project fee = you get paid up-front for the work you do.
Target-based performance incentive = you get either a % of increased profit or $ figure only when certain targets are achieved.
So a couple of examples of how this might play out for a website and lead generation system project:
a) You get paid $10,000 to create the system and then 20% of sales generated after costs.
b) You get paid $5,000 up-front then 40% of gross sales over $10k/m.
c) You get $15,000 for the build then $50 per lead over and above their baseline.
d) You get $3,900 for the setup and then a $500 bonus for every client the system generates.
There's no right or wrong way to structure these deals it really comes down to what makes the most sense for you and what gets your prospects excited.
Now let's look at it from your perspective:
- You get paid up-front and have moolah in the bank before you do a lick of work. This lets you do fun things like pay your mortgage and buy food.
- You have immediate cash available to outsource much of the grunt work.
- You have clear performance targets to aim for and are rewarded for hitting them. (Your goals are now tightly aligned with your clients goals.)
- You have a client who has invested a significant amount of money with you and is eager and willing to do whatever they can to see the project is completed quickly.
What about from your client's perspective?
- Their initial investment is likely lower than what it would be without the performance incentive.
- Performance fees are paid from increased profits so out of pocket expenses are lower.
- When they pay your performance fee they feel good because it is directly tied to their own increased results.
- They view you as a partner who is in it for the long haul rather than someone just trying to make a buck. (This is huge!)
If you want to start experimenting without jumping into the deep end then you can give prospects two options: one without the performance incentive and one that has a slightly lower up-front investment but has a target-based performance fee on the backend.
You might be surprised which one they go for.
Adding performance-based fees to your service offerings is as much about your mindset around the value you provide than anything else. As always, if you want some help in positioning yourself to get high value clients who will happily pay performance fees then here's a popular option for us to work together.