Tuesday, April 15, 2008

The Consultant's Money-Back Guarantee

On LinkIn, recently there was a question about what a client had to do to hire a consultant who wouldn't rip them off, just taking money for no measurable result. In my response to the question, I wrote:

I make this easy for my clients by two principles of my consulting business:

1. At the end of every consulting visit, I ask them to evaluate the worth of my contribution. If it's not worth more than they paid me, we either adjust what I'm doing or we terminate the relationship.

2. If they don't feel what I've done is worth what they've paid, they can have their money back, no questions asked. I make sure they know this up front--though I've never had to give back their money.

If a consultant doesn't give you both these things, don't hire them.

Why Give Their Money Back?

Pradeep Soundararajan wrote, in response:

While anything that any human does is a heuristic, why should a consultant want to give back the money for the client not happy with what the consultant influenced?

For instance, I go in as a Consultant to solve a problem. At the end I help the client understand that there is more investment he ought to do in order to ship the product. The client feels unhappy because he hired me thinking that I would help him ship the product with existing budget.

Maybe what I did is what other good consultants might have done, so should I return his money back because he feels disappointed?

Why? Because it's your job to satisfy the client. That's what they pay you for. If you buy a laptop from Apple or Dell or HP and when you try to use it, it doesn't work, don't you expect to get your money back? If you don't, would you ever buy a computer from Apple or Dell or HP again? So, one reason to offer a money-back guarantee is to develop future business with that client.

Another reason is to keep that client from spreading bad news about you to 16 other potential clients. (That's what people do when they feel they were cheated by a vendor. When they feel they got a good value, they tend to tell only three other people.)

The Steering Wheel and Brakes

For my consulting assignments, this guarantee acts like a combination of steering wheel and brakes. It guarantees that the client and I will pause periodically and see if we're going in the right direction. If we're not, we can use the steering wheel to change course, or in extreme cases, just apply the brakes and end the assignment.

Would you drive a car without a steering wheel and brakes? Then why would you want to take on a consulting assignment without them?

I guess maybe you wouldn't want them if all you wanted was a runaway car, one that somehow kept paying you as it careened away toward a fatal crash. If cash flow is the only reason someone is in the consulting business, I hope they hit that wall as soon as possible. People like that give my profession a bad name, and thereby hurt a great many ethical and effective consultants.

Don't get me wrong. I think money is a fine reason for being a consultant, but not if it's the only reason. I want to get paid for my work, but only if I'm actually helping people. I don't want to be a fraud.

What Is Value?

But perhaps the most important reason to offer this guarantee is to force them, and you, to think about what value means to each of you.

Pradeep goes on to say: I think such traps have to be cleared before a Consultant gets in by asking questions like, "What value means to you?" and "Can you think of things that you'd be disappointed to know at the end of this assignment?" and "Do you have insight about any kind of information that could cause you nightmares?"

Well, yes, of course you want to clear this up before you go in, but that's not always possible. People often don't know in advance what they want. They only know when they see it. Many of my clients ask for one thing when I come in, but through my consulting learn that they really wanted something else that was more valuable.

To take an extreme case, at one client, the man who invited me in to help with strategic planning learned that his alcoholism was tearing his own organization apart, and what he needed to do was fire himself and go into treatment. That wasn't what he asked for at the beginning of the assignment, but by the end, he knew that this result was far, far more valuable. I asked him if he wanted his money back (he was part owner of the company) and he said no. In fact, he wanted to pay me more--but I refused. I did my job (helping his company improve), and I earned my pay. That was enough for me.

What If Every Consultant Did This?

Pradeep then says:

Not every consultant would want to return back the money and that could be a good marketing stint or building credibility or a distinguishing factor but if every consultant does that ( which is not an easy thing ) then it might end up causing confusion of whom to pick.

Pradeep is right. It's not an easy thing. In fact, it's so unlikely that it's not worth worrying about.

But, if a lot of consultants used these principles, maybe there wouldn't be so many derogatory jokes about our profession of consulting.

Intelligence Isn't Enough

Pradeep then concludes:

An intelligent client picks an intelligent consultant and that's a heuristic, too.

Well, yes, that's certainly a heuristic, and a necessary one. But not by any means a sufficient one. Intelligence without ethics is like a biological weapon in the hands of a terrorist. Very powerful, to be sure, but you'd much rather not have it on your premises.


Unknown said...

Excellent information. Thank you and keep them coming.

Compass360 Consulting Group said...

Enjoy the information. Great entry.

The secret of the pragmatic consultant is defining "what is the value".

There are five general types of value. The question is how do you define it and how do you sell the message on how it connects to the big picture. It is all about having a full compass of their "Tangible Vision".

A lot of good food for thought.
Thanks again, Jerry! You are superb.

LMCoaching said...

Thanks for this. I was proposing offering a money-back guarantee and wondering if I was crazy to even think of such a thing. Since the project I'm working on will be 6 months, I think if we stop at the end of each month and evaluate, I would really only be giving back one months worth of the project if it came down to that

Eddie Geller said...

I have always thought about this and wondered if any consulting companies out there did this and what their feedback was. Lessons learnt, do's and don'ts, etc...

Karen Lopez said...

Just wanted to throw in a late comment:

I'd highly advise consultants to consider not offering this option, in this manner, when working through a third party, especially one of the large body-factory agencies.

There are enough bad apples out there in contractor placement agencies that it's highly likely you'll never see your last check no matter what your client thinks of your work. Dangling a free out to a bad placement agency (your client only in a legal sense) will always result in them taking that option.

That's why I don't work through those contractual vehicles and only work direct to clients.

I have never had a client want their money back when I've offered this clause.