How I let my client’s decide what they pay

The financial services industry is known for its extravagant bonuses and large salaries, but co-founder of risk management firm Noah’s Rule, Sean Russo, is bucking the trend by allowing clients to pay however much they feel the company’s service is worth.

Some would say the model is risky, especially during the recent financial crisis, but it’s working – the company recorded $2.7 million in revenue during 2008-09. Russo believes with the right attitude, other SMEs could do the same and see their business thrive.

Noah’s Rule deals with risk management, and hedging. How did you come to adopt this payment system?

We started with a position where we were charging for businesses by the hour, and we just knew in the case of certain jobs that depending on how we went, we might save them half a million or a million dollars and give them similar outcomes that they would get from a bank. We thought the transactions we were dealing with were quite large, we thought we were different from the banks offering these services because we were independent and… we were struggling to see how we got fair value for our services we were giving.

Now of course we don’t promote the idea that every bank is out there trying to rip clients off. What we observed, however, was that clients may not have any idea of what a transaction might cost if things don’t do well, and the enormous range of outcomes in how things wind up. It wasn’t right to charge by the hour, but rather by a range of outcomes and so on.

How did you introduce the model?

It was fairly simple. As we explained what we did to clients, they simply had no idea of the complexity of what we were doing. There was a great appreciation for the work, and they were grateful. So we just thought we would set a base rate, and then tell them something like, we believe the value for this is between $20,000 and $80,000, but it’s entirely up to you as to what that is.

It’s an unusual model. What do you think makes it work?

I would say a couple of things. First of all, we are highly selective in who we take on as clients. Generally one of the nice things about running your own company is that you don’t have to work for everyone, I’m not racing around trying to generate revenue. We do good work for good people, we don’t advertise, and we get paid based on the quality of the work.

I’m always looking for clients who are going to be interested in our advice and can see the benefit we add. I’m always looking for people who are very comfortable about what they know, and don’t know, and their willingness to admit that, and enormous business comes from referrals.

How do you deal with people who underpay?

I had someone complain about our hourly rates, and I said to them you could lose more money in the next three days than you understand. I said I would do the job for nothing, and then at the end of that he could write a cheque for whatever. He paid us half of what they should have, but they also paid us twice what we would have invoiced them for. We find it works out.

What advice could you give to businesses who want to do the same? What are the benefits?

You’ve got to be able to live and run your business off of the minimum that you are charging. In fact the only time we haven’t been paid some sort of performance fee above the minimum is when we actually told them not to. By our actions we couldn’t deliver more value, but I still think the minimum is reasonable.

I would encourage other businesses to try it if your business is different and really focused on relationships. It’s harder if you’re offering a good, which can’t be done, but if you are smaller, know your clients very well and want to gain long-term relationships with them, then I think it’s a good and different way to go about things.