Author: Kevin Schulman, Senior Vice President
Business: TRG iSKY
Topics: Anti-Recession / Growth and Marketing Tips
We are in the market research business, which historically uses a cost-plus pricing model – determine direct costs and charge a multiple of 2x to 3x. The problems with this are multi-faceted starting with misalignment of incentives between client and supplier. The client is focused on business metrics and the supplier is focused, knowingly or not, on more research to justify more fees.
The analogy is realtors who charge commission on the sale price. What additional work is done to sell a house at 600k instead of 500k? Answer, none. And yet, this is essentially what market research companies do all the time – bill Client A more than Client B for same amount of work just because Client A’s “house” (read: data collection) cost more .
If the industry wants to be in the value-add, consulting business then there should be very little connection between the data collections costs (which are the direct costs) and the analysis and insight delivered.
Our approach is more transparent and aligns our interests with the client. First, the direct costs are a pass through to the client. Then, we establish SMART (Specific, Measurable, Actionable, Realistic, Time bound) performance metrics to get our base fee. This is a well established rubric in project and performance management circles and the procurement folks love it.
Finally, we have a success “bonus” fee that is tied directly to increases in net income from changes directly tied to market research findings and recommendations. This structure is:
a) unprecedented in the field,
b) greatly appreciated by the client and
c) way past due.
The not so dirty secret in the MR industry is the gross underutilization of research and the supplier side must accept some responsibility for this, starting with aligning our incentives with those of our clients.
Contact us at: 240.456.4387
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