Christine L from Minneapolis, MN. Large healthcare system with 8 hospital campuses wants me to audit all utility accounts. Combined spend is $4.2M/year across 30 meters. They will not do contingency — legal requires fixed-price contracts. How do I price a flat fee when I have no idea what I will find?
Client insists on flat fee — how do I price without losing money
Christine, flat fee pricing requires estimating time investment, probability of findings, and likely savings range. For $4.2M spend, expect 3-8% in recoverable errors — $126K to $336K. On contingency at 40% your fee would be $50K-$134K. For flat fee, price in the lower-middle of that range.
Do not think of it as an hourly rate. Think project fee. $70,000 to audit $4.2M in spend is 1.7% of annual costs. Frame it that way — for less than 2% of utility costs they get a comprehensive audit that typically recovers 5-10x the fee.
Structure that works well: base flat fee plus a success bonus. Example: $50,000 flat for the audit, plus 15% of any savings over $200,000. Protects your downside, gives you upside. Client likes it because the base is fixed and the bonus aligns interests.
Marcus, that hybrid is perfect. $50K base covers my costs. 15% bonus above $200K gives meaningful upside. If total findings are $300K, I earn $65K. If $500K, I earn $95K. Both are fair.
Submitted the proposal with hybrid structure. Healthcare system accepted. Starting in January.
Update: completed the audit across all 8 campuses. Total findings: $412,000 including rate classification errors on 3 campuses, a power factor penalty on the central plant, and tax exemptions on 2 campuses. My fee: $50K base plus 15% of $212K equals $81,800. On straight contingency at 40% it would have been $164,800. Client saved $83K on audit fees, I still earned $81,800 for 5 months work, and they want me for their outpatient clinics next year.
$81,800 on a flat-plus-bonus structure. Christine, you left $83K on the table vs contingency but you got the client. Sometimes the relationship is worth more than maximizing one engagement.
Exactly Randy. And the outpatient clinic work next year will be another $30-40K. Long-term value of the relationship far exceeds the one-time fee difference.