I've been doing mostly contingency work (25-30%) for the past 8 years but thinking about shifting to more flat fee arrangements. Market is getting competitive and clients are shopping around more. What's everyone else seeing? Are you able to maintain margins with flat fees? I'm in OPPD and NPPD territory here in Nebraska and seeing more RFPs asking for fixed pricing.
Flat fee vs contingency - what's working for everyone?
Greg, I've been hybrid for about 3 years now. Flat fee for the audit work ($5-15K depending on complexity), then contingency on any savings we find. Clients like knowing the upfront cost, and I still get rewarded for finding big issues. Duke Energy audits here in Cincinnati run about $8K flat fee for a typical commercial account, then 20% contingency. Works well for both sides.
I've moved almost entirely to flat fees for new clients. Too many headaches with contingency collection. TVA territory clients especially seem to get cold feet when they see the final bill. My flat fees range from $3K for simple residential solar audits up to $25K for large industrial accounts. I make less per hour sometimes, but the predictable cash flow is worth it.
Still doing straight contingency here in Mississippi. Entergy customers don't want to pay upfront fees - they want to see results first. I've found 30% is still achievable if you can demonstrate real expertise. Just closed a deal for 35% on a paper mill audit that should net us about $180K. The key is positioning yourself as the premium option, not competing on price.
I'm seeing more clients wanting to pay hourly rates, especially for smaller accounts. OG&E commercial customers seem comfortable with $150-200/hour for audit work. No risk for them, steady income for us. The downside is you cap your earning potential - no big payday when you find a $50K error. But also no risk of working 3 months for nothing.
Albert here in Huntsville. I've noticed TVA industrial customers prefer flat fees for anything under $10K in potential savings. Above that, they're fine with contingency. I think it's a psychological thing - smaller amounts feel like nickel and diming, but big savings justify percentage fees. My sweet spot is $7,500 flat fee plus 15% contingency on savings above $30K.
The regulatory environment matters too. Idaho Power customers are used to stable rates and regulated service, so they're more willing to pay upfront. Deregulated markets make clients more price-sensitive across the board. I adjust my fee structure based on the utility territory. Idaho Power audits get flat fees, but anything in California or Texas stays contingency-based.
Great feedback everyone. Sounds like there's no one-size-fits-all answer. I'm thinking about offering clients multiple options - flat fee, contingency, or hourly - and letting them choose what works for their situation. Might help differentiate from competitors who only offer one structure.
That's a smart approach Greg. I actually started doing that last year and clients appreciate having choices. About 60% still go with contingency, 30% choose flat fee, and 10% want hourly. The hourly clients tend to be the most hands-on and want to learn the process themselves. Different strokes for different folks.
One more thing to consider - your engagement agreement language needs to be crystal clear about what happens if they want to change fee structures mid-project. I had a client last year try to switch from contingency to flat fee after we found a $75K error. Contract language saved me from losing $22K in fees.
Gerald raises an excellent point about mid-project changes. I always include a clause that any fee structure changes require written agreement from both parties and may result in additional charges. Also specify that work completed under the original agreement remains subject to the original fee structure. Protects both sides from confusion down the road.