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profit sharing

 
#1 profit sharing
29/11/2002 00:00

Steve Milner

I've recently conducted a limited introductory kaizen programme with a new client, a small but growing business engaged in the manufacture of small capital items. It prides itself on Delivery and Quality ...but profitability is a concern, with jobs taking generally 20% over the estimated time to manufacture.

The owner has now proposed a more sustained intervention, with remuneration based upon a small 'retainer' fee, and a share of improved profits.

I'm not in the business of awarding certificates, generating warm feelings etc. (they're a by-product) and have previously contracted to deliver x% productivity improvements, letting the client do the maths on this. Such improvements need to be autonomously maintained for a month after my intervention. If targets not met or sustained - no fee. Simple!

The new scenario is different.'Efficiency' depends on a host of things - job complexity (typically each product is 70% generic, 30% bespoke ...but ratios may switch), clarity & timeliness of customer specification, as well as all the usual organisational and motivational stuff. Efficiency/profits will therefore be subject to factors that I will find difficult to influence - which I accept to some extent as this is a reality of business.

Can anyone offer any advice on the contractual arrangements for this way of working? Any experience of something similar ...does & don'ts, etc.?

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#2 Re: profit sharing
29/11/2002 00:00

howard

My company frequently works on profit sharing basis for clients. Our single biggest mistake in the early days was to allow the client to influence the reccomendations and implementation plans. We have found that clients will agree to most things up front, particularly success related fee, but change their opionion when results have been achieved and payment has to be made. Their success measures will invariably differed from yours? As your fees are now based on measurable indicators it is critical that you have absolute control over implementation, your agreement must reflect this.

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#3 Re: profit sharing
04/12/2002 00:00

Francisco

Profit sharing sounds logical since represents a commitment from the consultant in obtainig the results. Unfortunately, clients and humans in general do not work based on logic, so I think instead of spending time discussing the measurement of the results, we should spend time doing our job and convince the client that the one committed with the results is him and no one else. Maybe, a client that wants to pay from results is not seriouslly thinking about improving his bussiness.

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#4 Re: profit sharing
05/12/2002 00:00

PADDY NORTON

I HAVE TRIED THEM ALL AND CONCLUDED THAT THE BEST SCHEME IS GAIN SHARING WHERE THE CONSULTANT, CLIENT AND EMPLOYEES ALL BENEFIT FROM THE PROCEEDS OF ACHIEVING ABOVE AN AGREED TARGET----BE IT FINANCIAL/MANHOURS OR OTHER. PRE-AGREE A RATIO OF PROCEEDS TO ALL 3 STAKEHOLDERS.RATIO CAN CHANGE AS ACHIEVEMENT ACCELERATES HIGHER.

GOOD LUCK--IT WORKS.

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