Contingency Fee Pricing Model: Beware

Shocked secretary examining documents.

If you heard the term “contingency fee pricing model”, did you ever wonder which party is really benefiting from this model?

Typically when you pay for a service, you expect the service to be carried out well and hopefully beyond your expectations. Yet, in the Telecom Expense Management (TEM) and Utility Expense Management (UEM) arena, the contingency fee pricing model has some traction. How does this impact your bottom line?

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 the case of expense management services, finding billing errors. Under the contingency fee pricing model, clients only pay their TEM or UEM service provider if  the TEM company finds errors on their clients’ telecom or utility bills. The percentage charged can amount to up to 40% of the dollar amount of the error.

While that most certainly sounds like a great deal, what TEM companies using this model often omit to tell their clients is how inconsistent and unpredictable the errors can be. Most clients are bound by predetermined budgets, making uncertainty a critical concern. Purchasing services from a TEM company on the basis of the contingency fee pricing model with unpredictably variable monthly fees are difficult to budget for.

Gartner suggests that to avoid exceeding budgets, it may be preferable for a client to pay a fee that may be higher but certain, rather than a fee that seems frequently lower, but highly variable.

As a TEM UEM service provider, RadiusPoint has identified for their clients millions of dollars of overcharges due to vendor billing errors. Just last year, we found a $700K error due to incorrectly invoiced contract rates! If you were the CFO of our client, can you imagine having to pay RadiusPoint a 40% percentage just for this one error?

This is why we stay clear from the contingency fee pricing model. As Gartner recommends, the magnitude of the billing errors that will inevitably be found is just too unpredictable. We charge a low monthly cost on a flat-fee basis: clients never have to worry about surprise or hidden fees.

Most client organizations expect the price charged by TEM companies to be proportional to the value they receive from the service. That sounds a lot like common sense. Ensuring a positive ROI requires this condition to be satisfied, and the pricing model to be fair.

In 2018, RadiusPoint generated an ROI of 587% on average for our clients, in both hard and soft dollar savings. This was achieved through identifying vendor billing errors and automating many of the Accounts Payable processes within client organizations.

Identifying errors, obtaining refunds and identifying ways to save money, (i.e. cost avoidance) should be the very first priority of  your telecom expense management company. However, if you have a TEM partner that charges you based on savings or errors identified on a monthly basis, their billing could be staggering. Going with a TEM company refusing to participate in this model should actually save you money in the long run.

Next time you come across a TEM service provider using a contingency fee 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, call us today at 407-657-4169.