I'm quoting a manufacturing company in Huntsville with Alabama Power and Huntsville Utilities. Total spend around $95,000/month across 4 meters. They want a comprehensive audit but their CFO is uncomfortable with a pure contingency arrangement — says he doesn't want my fee to be 'unlimited' if I find a huge error. But they also don't want to pay a large flat fee upfront. Has anyone used a hybrid model?
Retainer plus contingency — hybrid fee model for larger clients
I've done a few hybrid engagements for larger accounts. Structure: $2,500/month retainer for 3 months to cover the audit work, then 25% contingency on any recoveries. The retainer is credited against the contingency fee so if I find $50K in recoveries, my fee is 25% ($12,500) minus the $7,500 in retainers already paid, so they owe an additional $5,000. Client gets a lower contingency rate, I get guaranteed income during the audit phase, and the retainer credit means the client isn't double-paying.
The retainer-plus-contingency model works well but make sure the math is clear in the agreement. What happens if the retainer exceeds the contingency amount — do you refund the difference? I don't. My agreement says the retainer is non-refundable compensation for professional services and the contingency is additional compensation for identified savings. Two separate fee components, not one credited against the other. Simpler to explain and avoids awkward refund conversations.
Both approaches are valid. Walt's credit model is more client-friendly and wins more proposals. Susan's separate-components model is cleaner legally. For a $95K/month account like Albert's, I'd lean toward Walt's approach because the potential recovery is large enough that even at 25% contingency with retainer credits, the fee will be substantial. The retainer demonstrates your professionalism and the credit demonstrates fairness. It's a strong selling point for sophisticated clients.