Reversing the Risks for Your Clients and Partners (Part 1)

In difficult economic times, how do you encourage potential clients or partners to move forward with projects they might have been considering, yet are postponing -- mainly because their cash flow and confidence levels have sagged in recent months?

This article, the first in a series, suggests ways that you can reduce, remove, and even reverse the risks of doing business with you, making it far easier for others to say "yes"! In doing so, you can position yourself as an innovator who meets people more than halfway by addressing their deepest concerns and worries.

---------------------------------------------------------------------- Consider Sharing the Risks and Rewards with Clients ----------------------------------------------------------------------

With budgets slim, yet needs aplenty, many organizations desire to have products or services developed, but aren't sure how they can pay for the help they'll need from service providers, such as contractors, consultants, or vendors.

If you're an organization with such a need, or you provide professional services to clients, and you've recently been delicately dancing around the budget issue, consider some of the ideas below.

Instead of setting up a typical client-provider relationship, where the client pays the service provider a full project fee or an hourly rate, explore the idea of collaborating jointly on a risk-reward basis.

A joint development approach might involve an up front deposit or retainer to the service provider. The bulk of the compensation, however, would typically come after rolling out, marketing, and selling the deliverables, which could be products or services.

Note that this approach will not fit everyone's needs because all parties must have adequate reserves to tide themselves over until revenues start flowing in. And there's always the risk of not being able to complete or sell what is produced. But if you each have the ability to stay afloat while you take calculated development risks, consider these types of revenue-sharing arrangements:

1) Become "partnering affiliates."

After your joint product or service is ready for marketing, you could rely on the affiliate module of an online e-commerce system to keep track of the revenues. The features of such programs manage all the bookkeeping aspects automatically. They total accruals (revenue splits) and let the partners easily track their own earnings by viewing reports online. These third-party programs make the process independent so that maintaining the books does not fall on the shoulders of one party or the other. This helps keep the partners' trust levels high and the accounting worry-free.

2) Explore other "share of results" methods.

Similar to the "partnering affiliates" approach, you could consider other ways to perform the work and allocate the results. These could include a percentage of royalties; a shared, vested interest in the long-term return for as long as the venture remains profitable; or a similar divided-equity arrangement. If you strike such an agreement, draft a written understanding that reflects your approach. You should be sure to consult an accountant or attorney to help you weigh the pros and cons, as well as help finalize the agreements -- especially for any equity-based scenarios.

3) Reverse the development risks.

If you're a service provider who has more robust financial reserves, you could consider even greater development risks. In these cases, you could offer to reverse the clients' risks (such as by taking no initial deposit or retainer whatsoever). Therefore, you'd earn your share of the revenue only if the project delivered and someone successfully marketed the results. Making this offer could encourage even the most reluctant client to participate if the revenues generated represented "windfall profits" that the client would not have realized otherwise. These are key points to emphasize when proposing the idea to prospective clients or stakeholders.

---------------------------------------------------------------------- What Are the Benefits? ----------------------------------------------------------------------

If you're a service provider, these techniques could be quite lucrative for you in situations where the shared results increase over time as the client's business prospers from your work. It's a type of "contingency financing" because the results are contingent on your efforts.

If you can afford to offer your services this way, you all but eliminate the financial risks for your client and the project, yet you reap the benefits when you do a good job. Your best-case financial scenario could be far superior to using project-based fees or hourly invoicing. However, be sure to consult an accountant or attorney for advice on structuring any unfamiliar agreements.

In conclusion, even during fluctuating economic conditions, service providers such as contractors, consultants, and vendors can propose new ways of working on client projects that minimize the risk for clients. By using joint development approaches and risk-reward sharing techniques, the participants can craft creative agreements to move projects forward and achieve win-win results.

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