Got a new client here in Cleveland who wants to engage us for a FirstEnergy audit but they're insisting on capping our contingency at 25%. Standard industrial account, probably looking at $800K annually. My standard LOA calls for 33% which has worked fine for years. Anyone else running into clients pushing back on contingency rates? What's your experience with lower percentages - worth it or not?
Client wants to cap contingency at 25% - thoughts?
Frank, I've had similar pushback from larger accounts here in Charlotte with Duke Energy. Honestly, 25% can still work if the savings potential is substantial enough. I'd recommend getting a really good sense of their billing complexity first - if they've got multiple rate schedules or demand issues, there's usually enough meat on the bone. Just make sure your engagement letter is bulletproof on scope.
Derek's right about the scope language. I learned this the hard way with CPS Energy down here in San Antonio. Client wanted 25%, I agreed, then spent twice as long as expected because their billing was a nightmare. Now I either stick to my standard rate or build in very specific language about additional compensation for complex accounts. Don't sell yourself short just to get the deal.
I've done plenty of 25% deals with TVA accounts here in Knoxville. The key is qualifying the opportunity properly upfront. Ask for 24 months of bills and do a quick scan - if you're seeing obvious issues like incorrect tariff classification or demand charges that don't make sense, then 25% of a big recovery is still good money. If it looks clean, walk away.
Terry makes a good point about the qualification process. One thing I always include in my LOA now is language about minimum recovery thresholds. So if we're doing 25% contingency, I might specify that if total recoverable amount is under $50K, there's a flat fee component. Protects you from spending weeks on an account that only yields a few thousand in savings.
Jim raises a crucial point about minimum thresholds. I've been burned by that before with some Connecticut Light & Power accounts. Spent 40 hours on what looked like a promising account, found $18K in errors, and after 25% contingency it barely covered my time. Now I always include either a minimum fee or hourly backstop in my engagement agreements.
Good discussion here. Down in Dallas with Oncor territory, I've found that 25% can actually be more palatable to clients than 33%, and you end up getting more referrals. Volume can make up for the lower percentage if you're efficient with your process. Just make sure you're not doing charity work - know your numbers and stick to accounts with real potential.
Marcus hits the nail on the head about referrals. I've built most of my Tulsa practice on 25-30% contingencies with PSO accounts, and the word-of-mouth has been fantastic. Clients appreciate the lower rate and I've stayed plenty busy. The key is really in your initial screening - don't waste time on accounts that won't produce meaningful results. Thanks for the insights everyone, definitely helps with my decision.