Been doing mostly contingency work for the past few years but lately getting more requests for hourly engagements, especially from larger clients with in-house energy managers. Thinking about offering a hybrid model - maybe hourly rate with a success bonus tied to recoveries found. Anyone tried this approach? How do you structure the rates to make it work for both parties?
Hourly vs contingency - hybrid model thoughts?
Grace, I've been experimenting with hybrid models for about two years now. What I've found works is a reduced hourly rate (maybe 60-70% of my normal rate) plus a success fee of 10-15% on actual recoveries. Clients like the predictability of hourly billing but you still get rewarded for finding significant errors. Key is making sure the success fee kicks in early - I use a $25K minimum threshold.
Randy's model sounds similar to what I've tried with some Green Mountain Power accounts here in Vermont. The challenge I've run into is clients wanting to micro-manage the hourly work more than they would with pure contingency. They start questioning every hour spent, which can actually slow down the process. Make sure your SOW is really detailed about what activities are included in your hourly scope.
Chester raises a good point about scope creep with hourly work. I've found that sophisticated clients actually prefer the hybrid approach because it aligns our interests - they get the benefit of our expertise without paying for a miss, but we still get compensated fairly for our time. With Alabama Power accounts, I've been using $200/hour plus 12% success fee on recoveries over $50K. Working well so far.
Gwen's rates sound reasonable. One thing I've learned is that the hybrid model works best with clients who have multiple accounts or ongoing needs. For one-off audits, pure contingency is usually more straightforward. But for clients who want quarterly reviews or ongoing monitoring, the hourly component gives you steady income while the success fees reward your performance. Win-win when structured properly.
Rachel makes a great point about ongoing relationships. I've had good success with hybrid models for facility management companies here in Louisiana who manage multiple properties. They like having a go-to expert on retainer at hourly rates, and I like having predictable monthly income. The success fees on top are just bonus when we find significant issues. Much more stable than pure contingency feast-or-famine.
Juan's experience with facility managers mirrors what I've seen in Dallas. The hybrid approach has actually opened doors with larger clients who would never consider contingency work. They see hourly as more 'professional' even though the total cost often ends up similar. Psychology matters in client relationships. Just make sure your contracts are clear about when success fees apply and how recoveries are calculated.
Marcus brings up an interesting point about client perception. I've noticed that procurement departments especially seem more comfortable with hourly rates in their vendor agreements. The success fee component sometimes requires additional approval levels, so I've started positioning it as 'performance incentive' rather than contingency fee. Same economics, different language, but it smooths the approval process.
This discussion is really valuable. Gary's point about language is something I hadn't considered - 'performance incentive' does sound more palatable than 'contingency fee' to corporate types. I'm going to revise my proposal templates to offer both traditional contingency and the hybrid hourly plus incentive model. Gives clients options and shows flexibility. Thanks for all the insights everyone.