On result-based fee arrangements in coaching
- Can coach’s fee depend on the client achieving some specific results?
- What are some of the potential pitfalls the coach can anticipate with such arrangements?
Most clients are looking for tangible results when they hire a coach.
Both individual and corporate clients consider coaching as an investment and want to get a measurable outcome or value that is worth their money.
Traditional agreements define coaching goals in terms of general objectives, competencies, behaviors to be addressed and expected outcomes. The coaching fee is based upon a number of sessions or coaching hours. However, achieving those goals cannot be guaranteed, as the client is held responsible for the results.
The issue with this model is that clients are interested in their results at the best price, not a coach’s profit or how much time is put into a proposal or a process. And of course, clients will pay an extra premium if they believe they can achieve faster, better or more permanent results with a higher-priced coach. This puts a coach into a long and complex process of convincing a client (sponsor) of his/her ability to deliver the expected outcomes or to help an organization achieve their goals. In addition, the coach must prove that the price is adequate to the value the client gets, and to the effort the coach puts into the process.
Can result-based fee arrangements be a win-win situation in professional coaching?
Although this may seem beneficial for the client (sponsor) since it adds a security for their investment, and for the coach because it makes it somewhat easier to sell coaching based on results rather than a number of hours, there are some pitfalls that need to be avoided before engaging into this kind of agreement:
1. How S.M.A.R.T. are coaching goals?
The principles of S.M.A.R.T. goal setting (Smart, Measurable, Achievable, Relevant & Time-Specific) are hard to apply in a coaching agreement.
In order to be agreeable, the result-based contract must be very specific about the results, their measurements, whether or not they meet the criteria and what is the review process. In contrast with some other professional services, however, coaching results and effectiveness are very difficult to measure quantitatively and even qualitatively.
In organizational settings, when working with corporate clients, some employee survey tools such as “360 degree” feedback surveys or employee/team satisfaction scores could help provide some tangible results that can be taken before, during and after the coaching sessions to track improvement.
The coach and client must be very open and specific about the goal-setting process, benchmarks, reviewing process and criteria of success. Both parties must agree on many questions, like “How do you (client) know that you achieved the desired results”, “How do I (coach) know that you (client) achieve your results?” etc.
Any omissions or ambiguity in the coaching goals and other terms of the coaching contract can be a potential trap or a source of disagreement when it comes to reviewing the results.
2. Cost vs. Value
How much does the result cost the coach and does the client value it? How does a coach put a price tag on the result?
As coaches, we should not expect clients to automatically see and understand the value we could provide to their business or their personal goals. Some will be focused only on the need to make a specific improvement or solve a narrow problem. It may be necessary to challenge the client’s mindset about what they want or what problems they have, and put the real value right in front of their eyes to support the price. On the other hand, a coach should be cautious not to set client expectations too high; otherwise it will become very difficult to define what the criteria is for “meet” or “achieved” results.
Can you guarantee the result?
Principals of professional ethics and the nature of coaching relationships do not allow a coach to guarantee achieving the results. In the coaching process, the client is setting the objectives and the agenda, and is ultimately responsible for the result.
If the result cannot be guaranteed, a coach should admit that there are chances that the result won’t be delivered, and be prepared for potential financial and relationship consequences.
3. What happens when your fee depends on the client achieving some specific results?
Does the client (sponsor) have enough motivation, willingness and organizational support to achieve declared goals, make changes, to leave his comfort zone etc?
With a result-based fee agreement, any uncertainty in that becomes your risk.
You'll need to trust that your client has the will and the ability to make hard choices. That assurance is best known with existing clients. You'll need to perform extra due diligence on this issue regarding clients you have not worked with before.
4. Expect for the unexpected
Are you willing to put part of your proposed fee at risk?
When you are paid on an hourly basis (and in most cases in advance), you can be assured that in case of any uncontrollable events you will get paid for the work you’ve done (or at least for the time you spent). This may not be the case in a results-based agreement. Changes in personal life, business environment or difficulties in your relationships with sponsor or client can put some of your fees at risk.
Also, in the case of value-based billing arrangements, your fee will be based on a sliding scale, based on results. If you exceed expectations, your fees will be generous. If you fail to meet the pre-determined performance benchmarks, part of your fee is at risk.
5. Can you wait for expected results to materialize before you receive the full payment?
Before getting into a value-based billing arrangement, assess what impact the agreement could have on the short and long-term financial health of your business.
This potential issue can be particularly addressed by negotiating a fee structure that may consist of some fixed amount paid in advance or by a schedule (50% for instance) and another ‘bonus’ portion paid upon achieving specific goals.
6. How can your client compare the results-based proposal with a fixed-rate proposal?
Clients have used the simplicity of the hourly rate to help make decisions on choosing consultants. The hourly or fixed rate gives clients an apples-to-apples comparison (at least on price) of their alternatives. If you choose the results-based option, you have to demonstrate a dramatic difference in measurable results as compared to other coaches, or your clients will head right back to the comfort zone of the hourly rate.
As some business consultants observed, clients sometimes perceive less risk and lower cost with the hourly rate option, even when that does not reflect reality.
Even if a results-oriented fee arrangement may appeal more to clients and therefore give some competitive advantage to coaches, the number of pitfalls this model potentially has, makes it difficult to use in the real business practice of a professional coach. It is our recommendation to avoid this type of fee arrangement, if possible.
However, we acknowledge the importance of creating tangible measurements of coaching, an ROI. Carefully selected assessment tools and surveys may help provide some measurements that can be taken before, during and after the coaching sessions to track improvement and thus become scoring criteria for a client’s goals (e.g. benchmark improving of manager performance, employee commitment, etc.). The questions for these surveys should be agreed upon in advance of the coaching sessions and should not change over the survey period. Negotiation of a fee schedule and/or setting of flat and result-based portions may alleviate financial risks for the coach.