60 percent of small businesses are service-based. These can be management consultants, attorneys or accountants to name a few of the most common. The consultant-client contracts are different and unique to each industry. Partner (or business) development consultants are no different. The only similarity to other industry agreements is the boilerplate legalese, such as limitations of liability, mediation and the like. But the most important things such as project scope, measures of success, deliverables and most importantly, fees, are very different. Here are the unique elements of a partner or business development consultant contract.
I’ll address the more meaty subject of accepting a balance between accepting equity, commissions or other forms of payment in addition to cash in another blog.
After the contact information, company background and situation is the Objectives section. Objectives can be set at two levels: strategic (e.g. get acquired) or tactical (get a distribution agreement). Either way, the measures of success have to be confirmed in writing by both parties.
Measures of success:
Following the objective section is Measures of Success. Not including this critical component is the most common and most critical mistake made by consultants and clients who don’t demand this section put themselves at risk for failed expectations. Both parties have to agree on what qualifies as success, or for that matter, failure of the project.
I´ll give you an example of where the objective and the measure of success were totally different. The project was for Microsoft and the objective was strategic: create a partner strategy for the Exchange group. The measure of success was tactical: articulate the past, present and future of the partner ecosystem. It went without saying that the project lead within Microsoft had to be completely satisfied with the measure of success.
Then comes the Deliverable. This is typically the physical deliverable of the project. Even a half-long brainstorming session has a tactical deliverable-perhaps a summary report. In the case of the program with Exchange, the deliverable was a 5-page presentation.
Next up is the timeframe. To be blunt. Forget retainers. Go milestone-based or monthly.
Most small business clients want a final date for project completion and delivery of a partnership. This isn´t realistic. So a consultant can´t give a final date like a designer or writer. But retainers don´t work, since its misinterpreted as an open-ended paycheck, and this leads right back to the discussion of a retainer. Instead, it is best to go with an objective-based program wherein the program fee is paid monthly. And as long as progress against milestones is met, the fee continues to be paid. It also allows a really easy way for the business owner to connect the dots between payment and progress.
30 day out clause. The consultant or the small business owner can cancel at any time with a thirty-day notice. This is critical to small businesses that live and die on cash flow. On the other hand, the consultant, can cancel anytime due to breach of contract. As long as the consultant does his or her job, the project continues.
Depending on contract structure, fees are either milestone based or scheduled in 30-day increments. You might note this goes directly against what I said above, regarding milestones. But there are some guideposts to use.
Ask yourself this question: can the project be realistically milestone based, and more importantly, can the consultant control the achievement of the milestones? If yes, then draw up the contract according to the milestones. If you have any doubt as to the consultants ability to achieve the milestones, then go with a schedule.
If you estimate the project is 3 months or shorter, go with a Â½ down Â½ at the end, or split into three equal payments. If the project is 3 months or longer, use monthly payments only.
At the beginning or at the end? The biggest question. The consultant wants money before the work is done. The small business owner client wants to pay after the results are delivered. Here´s the challenge. The consultant does the work, creates the partnership and then gets stiffed. Don´t laugh. It happens. On the other hand, the client can claim that the consultant will get paid and then stiff them. Unfortunately, that happens too. The only way to overcome this is through a really convincing sales pitch, or an established reputation, which can take a year or two before a reputation is established. So be realistic. In the beginning, a consultant may have no choice but to accept a small amount up front, and the rest after milestones are met. Later on, graduate to 50% up front (for small projects), or monthly payments made before work begins. The only exception to this should be the level of comfort with between the client and the consultant, and the ability to take the financial risk and delay payments.
Questions? Ask me a question through the comments section or at email@example.com.