If you have heard the term, contingency fee-based, have you ever wondered which party is really benefiting from this?
Typically when you pay for a service, you expect the service to be carried out well and hopefully beyond your expectations. In the Telecom Expense Management (TEM) and Utility Expense Management (UEM) arena, the same concept has been adopted, called contingency fee pricing model. A contingency fee is defined as a fee or payment for services provided where the fee is only payable if there is a favorable result, in this case, finding invoice errors. Under the contingency fee model, clients only have to pay their TEM or UEM provider services if an error(s) is found on their company’s telecom or utility invoices, usually a percentage up to 40% of the dollar amount resulting in the error.
While that most certainly sounds like a great deal, what the vendor does not tell you is how inconsistent and unpredictable the error(s) could be. Most buyers are bound by predetermined budgets making uncertainty a critical concern. Purchasing from a vendor that uses a contingency fee-based model with variable monthly prices short of a predictable maximum are often difficult to budget for.
Gartner suggests that rather than exceeding budgets, it may be preferable for the buyer to pay a price that may be higher but certain rather than a price that seems frequently lower, but fickle.
As a TEM and UEM provider, RadiusPoint has identified millions of overcharges for their clients due to vendor errors. Late last year, we found a $700k error simply due to incorrect contract rates. Can you imagine if you had to pay us a 40% percentage just for this one error? That is why we stay clear from Contingency based models because as Gartner recommends, the error is just too unpredictable. Our low monthly cost is charged on a flat fee basis, so clients never have to worry about surprise or hidden fees.
Most customers expect the price charged to be proportional to the value they receive from the offering which sounds a lot like common sense. Ensuring a positive ROI would mean this needs to be satisfied as well as the pricing model deemed fair. RadiusPoint boasts a proud ROI for 2018 of 587% for our clients all due to hard and soft dollar savings. This is through identifying errors from vendors and automating many of our clients AP processes.
Identifying errors, obtaining refunds and identifying ways to save money, i.e. Cost Avoided, should be job one for your Expense Management partner. However, if you have a partner that charges you based on savings or errors that they identify on a monthly basis, the bill you receive from them could be staggering. Deciding to go with a partner that does not participate in this model might actually save you money in the long run.
Next time you come across a vendor that uses a contingency pricing model, find out what the percentage of shared savings is. The best thing you can do is gather the facts and decide which would be right for your organization.
For more information on RadiusPoint’s services, visit our website at www.radiuspoint.com or call us today at 407-657-4169.