by Tony Vidler
“Scope Creep” is the killer for the Holy Grail of professional services business models: fixed fee advice. That ideal model which so many aspire to is having clients who agree to ongoing fixed fees, and the practice income just rolls in month after month.
Fixed fee advice being delivered on an ongoing basis is a wonderful thing for a practice when it works well, and it IS something that fee-based practitioners should be factoring in to their business development plan. For the clients it removes cost uncertainty, which is often a major barrier for ongoing engagement, and it delivers cashflow certainty for both parties. It also has the advantage of breaking advice fees down into palatable chunks for clients, which often eliminates price or cost objections. For the practitioner the emphasis shifts from a constant search for the next engagement to delivering ongoing value to those who already value you.
So, delivering advice on an ongoing basis for a fixed regular fee makes sense for an advisory firm and its clients.
The issue is that typically when we set up a fixed-fee advice agreement we agree to the range of services or functions which will be delivered for that regular fee (and we price the service accordingly), but the scope changes after the agreement has begun.
Most often the scope is changed by the client of course, and the professional makes a small series of exceptions to the agreed service and does deliver extra time or advice or services that were never originally priced in or agreed to. Sometimes it is the professional or the practice who make the changes and incur the additional work, but in those instances the business (be it firm or individual professional) should be making a conscious decision that the additional work is worthwhile even if it hadn’t been priced in. It may be worthwhile due to the anticipated lifetime value to the firm of a particular client, or because it is a new service being introduced to lift client satisfaction levels, or perhaps it is additional work imposed through regulation…whatever the reason it is not one of the clients making.
However most scope creep is initiated by clients, and tacitly endorsed by us. We scope out the engagement and anticipated service with the client, and both sign an agreement to that reflect that, and the agreement is typically never looked at or referred to again.
Something happens in the clients life and they need to ask some questions, and some time is spent handling that. Perhaps a new piece of advice is required to handle the situation. Maybe the quarterly reporting begins to take a lot longer than originally anticipated…and the clients asks nicely if they can have monthly reporting instead……or clients want product solutions re-marketed annually…or….and on it goes.
Actually, that is our fault for allowing it to occur and escalate. The problem is that professionals do not initially recognise that scope creep is occurring, and then when they do, they choose to do nothing about it with the client. Once the additional work is delivered for no additional cost the client forms an expectation that this level of service and advice is what they are paying the regular fee for….and a problem is born. The professionals who absorb the extra work through gritted teeth and say nothing to the client about it reinforce the clients perception that this level of advice and work is part of the agreed fee.
It can be avoided however with better and stronger communication which is focussed upon managing client expectations.
At the first sign of scope creep there must be a conversation which reminds the client precisely what the agreed service level is. I am not suggesting that at the first sign of scope creep an additional fee should be imposed upon the client, and if the additional work is a relatively minor thing then I am in favour of absorbing it and not imposing a fee for the extra work. Such a response generally tends to generate goodwill and helps forge a stronger sense of value in the advice relationship. It does only achieve that though if the client recognises that the professional is now doing something “above and beyond”.
A reminder of what the fixed fee agreement covers is essential for managing client expectations as well as creating goodwill and building the relationship. It is also critical for managing conversations about additional fees if the additional work warrants it in the professionals view.
Failing to initiate that conversation at the first sign of scope creep is the very thing that will encourage more of what you don’t want: clients with ever changing expectations of the agreed service but whom are unwilling to pay for additional work.
The key to managing the issue is being proactive about ensuring clients understand what work is agreed to on an ongoing basis, and then being willing to make a call on whether to absorb the additional work or whether there is a necessity to have a further fee conversation with the client directly.