Watch out for contract pricing issues

If you’re not careful, you can get caught in a variety of contract-related pricing issues. Topics of pricing, payment terms, and unfair risk provisions can cause massive financial issues for you in the future. It’s important to understand what these common pitfalls are so you can look out for them during the early stages of contracting and take action to prevent them from occurring. Some clients will request most favored customer pricing. That’s where you’ll give them the lowest rate you offer any other customer, even your biggest and best clients. Tell the client you’ll offer that when they reach specific committed levels of expenditures with your firm. If they commit to large purchases, great, but if they’re unwilling to commit, they’ll usually concede by removing this provision since it’s pretty ridiculous. Contingent pricing and at-risk fees can be fraught with peril. Basically, you’re putting your fees at risk subject to something happening that may be beyond your control. Clients will claim this is to align incentives. All it really does is puts your fees at risk. If you do go down this path, ensure the language clearly specifies the conditions under which you get paid, and how success is going to be measured. Also make sure you have the right to audit their books to see if those triggers are hit. I had a Thought Leaders client where I put some of my fees at risk. We were pretty explicit about the trigger in the contract. Two years later, that trigger was hit. The problem was, there was a new executive that was in charge of the organization. He decided he was going to interpret the trigger differently. We had a contract dispute. I had to get my attorney involved. Even then, I didn’t get all of my fees. One final watch out is payment terms. They can be written in a way that ties up your money for a long time, sometimes up to 120 days after you submit an invoice. Ask your client if they have small business exceptions for these terms, especially if they’re excessively long. These types of pricing clauses all seem okay during the initial stages of contracting. But, if you accept these provisions you may be very sorry when they actually get enforced. Understand what the provisions mean and make sure your contract covers you in the event that they’re in there.