What a success-fee basis means
The service provider renegotiates with your suppliers and receives a share of the savings. If no better terms are achieved, you pay nothing for that supplier. Some models also charge a fee for the initial analysis.
Seven questions for every proposal
- What is the fee share, and how long does it run? Work out what the share amounts to over the full duration. One third over twelve months equals one third of one year’s savings. Half over 36 months equals one and a half years’ savings.
- What baseline is used for the calculation? The baseline is the price and volume before the negotiation: the previous year’s volume or a contractually agreed annual volume. Agree the baseline in writing before the start.
- How are the savings measured? One clear rule is: difference per unit times baseline volume. Clarify what applies if volumes change significantly.
- What counts as savings? A better price for the same service is not the same as less service, longer payment terms or a price increase that was fended off. Decide in advance whether and how these cases count.
- When is the fee invoiced? Once after the deal is closed, monthly or quarterly. Invoicing in step with the savings is easier on your cash flow.
- Who decides which suppliers are negotiated with? Decide for yourself which suppliers the service provider approaches and which negotiations your team conducts itself. Every agreement should require your written approval.
- What does it cost to get started, and what happens if there is little to gain? Ask about the price of the analysis, when it is due, whether it is waived if you award the mandate, and whether you may use the results without a mandate.
Worked example: the same savings, three fee structures
A renegotiation saves €100,000 a year, and the new terms last three years. So over three years you save €300,000. This is how much you keep, depending on the fee structure:
Half over 36 months
Fee €150,000You keep €150,000, which is 50%
A quarter over 36 months
Fee €75,000You keep €225,000, which is 75%
One third over 12 months, our model
Fee €33,333You keep €266,667, which is 89%
When a success-fee basis does not pay off
- Your procurement team already renegotiates with its suppliers every year using current market data.
- The service needs to be redefined. In that case, a tender helps more than a renegotiation.
- A contract expires in a few months and you do not plan to renew it.
Frequently asked questions about success fees
Is a success fee permitted in procurement consulting?
For lawyers and tax advisers, professional rules restrict success fees. There are no such professional rules for procurement and cost consulting. The contract sets out the terms.
What share of the savings is fair?
Compare what you keep over the period for which the new terms apply. With us, you keep around 89% of savings that last three years, and around 93% of savings that last five years.
What do we pay if nothing is saved?
With us, nothing: without proven savings, there is no fee. The pilot review is free. The Terms Check is free if you mandate the negotiation; otherwise the price agreed before the start applies.
