Retroactive is easy to price. There is a refund, it arrives, you take your percentage. The client understands it because the money is real and it is in their hand.
Prospective is where every fee argument I have had actually happened. You find a rate reclassification or a demand correction that saves the client four hundred dollars a month going forward. That is worth more over three years than most refunds, but it never appears as a check, so it never feels like money to the client.
Three things that have helped.
Define the measurement period in the agreement and be specific. I use twenty-four months. Anything longer and the client starts arguing that market conditions, not your work, produced the saving. Anything shorter and you are leaving real value behind.
Define the baseline in the agreement too, not afterward. Which twelve months, which determinants, weather-normalized or not. If you leave this to be settled after the saving appears, you will settle it badly.
Invoice prospective savings on a schedule rather than as a lump sum. Quarterly works. It tracks the actual realization, it is easier for a client to absorb, and it keeps you in contact with the account, which is where the next engagement usually comes from.
I run a lower percentage on prospective than retroactive for exactly this reason. The collection friction is higher and it is worth pricing that in.
Prospective is where every fee argument I have had actually happened. You find a rate reclassification or a demand correction that saves the client four hundred dollars a month going forward. That is worth more over three years than most refunds, but it never appears as a check, so it never feels like money to the client.
Three things that have helped.
Define the measurement period in the agreement and be specific. I use twenty-four months. Anything longer and the client starts arguing that market conditions, not your work, produced the saving. Anything shorter and you are leaving real value behind.
Define the baseline in the agreement too, not afterward. Which twelve months, which determinants, weather-normalized or not. If you leave this to be settled after the saving appears, you will settle it badly.
Invoice prospective savings on a schedule rather than as a lump sum. Quarterly works. It tracks the actual realization, it is easier for a client to absorb, and it keeps you in contact with the account, which is where the next engagement usually comes from.
I run a lower percentage on prospective than retroactive for exactly this reason. The collection friction is higher and it is worth pricing that in.