My old firm never asked for a retainer or partial fees in advance of an engagement but I hear that some independent consultants will ask for a percentage of fees in advance. Now that I have left to start my own firm, how common is this and should I press this with new clients?
It is quite common for consultants to ask for a retainer or some fees up front. But before you ask for an advance, think about why you would want to do this. There are several rationales (if you feel compelled to discuss this with your prospect). First, are the simple economics of getting your money as early as possible to manage cash. We pay for many services, such as groceries or movies, before we consume them, so why not consulting services? However logical this may be to consultants, our efforts are intangible services for which clients perceive some risk, so asking for partial fees up front splits the difference in risk between front end and back end payment.
Second, the concept of "earnest money" comes into play. There is something psychological about putting money on the table first. As a former client, I can vouch for the attention-focusing impact of paying a significant amount of fees up front and having the consultant work through the retainer. Finally, there may be a measure of risk management in getting a retainer if you believe the client may not be able to pay. This is a real issue when your clients face cash flow constraints or if you are consulting in distressed industries. Tip:
Your ability to secure advance payments from a client is mostly about their perceived risk of doing business with you. Certainly your reputation and referrals from past clients play a role. But the core of managing perceived risk in the client's eyes is your ability to create confidence in expressing the scope, sequence and content of your activities and the value created over time. It more likely you will only be paid after the fact if you are just "advising" a client or providing effort. You will only be paid for hours after you deliver hours. If you want fees in advance, your best bet is to convince them real value will be delivered in full, on schedule and guaranteed. You are more likely to get a piece up front if the client thinks you are delivering value rather than hours.© 2009 Institute of Management Consultants USA