Flat Fee vs. Percentage of Savings

My associates and colleagues know I have been a long-time proponent and advocate for flat fees and/ or capped fees in this profession.

When I created my company in 1997, there was very little competition in the Commercial Debt Resolution profession and most everyone was charging a percentage of savings for settlements.  That percentage typically ranged between 25% to 35% of the amount saved on a claim for a debtor company.  The sales pitch went something like:

"Hey, this puts me on the same side of the table as my client since the more I save them, the more I make.  So, my incentive is to save them as much as possible.  All parties win with a successful settlement."

Makes sense, right?

Well, I quickly found the EXACT OPPOSITE was usually true.

Consider a client with a $100,000 claim and a fee set at 30% of savings.  If I can negotiate a $40,000 settlement, I just saved my client $60,000 on the claim.  Unfortunately, I just created a new debt with my $18,000 fee ($60,000 x .30).  Sure, the net savings for my client is $42,000 but now they have to figure out how to pay me $18,000.

My initial resolution to this issue was to cap my fee and continue to charge a percentage of savings.  This helped to avoid any fee "sticker shock" for my client at the end of settlement negotiations.  I still utilize this fee structure for certain cases where it makes sense and it continues to be well received.

However, most of my cases are worked on a fair and reasonable flat fee basis so there is absolutely no uncertainty regarding my fee from beginning to end of negotiations.  This fee is agreed upon after consulting with a prospective client and is based on the size and complexity of each case.  After negotiating hundreds (if not thousands) of settlements over the past 21 years, I usually know what to expect once I gather some background on a claim.  An upfront fully refundable retainer is typically required before I begin negotiations which also makes payment of the balance of my fee easier at the end of a successful settlement negotiation.

A flat fee also makes sense for cases where only a payment arrangement is negotiated with no discount.

I encourage all prospective debt settlement clients to question any proposed open-ended percentage of savings fee that does not include a cap.  Nobody wants to resolve one problem debt just to create another.

Scott F. Soape