First of all, HAPPY NEW YEAR and all the best for 2017. It has been a while since I wrote my last blog about SkatteFUNN; I am very sorry for this. First, there has been the summer which I wanted to use to relax, enjoying the sea and getting good ideas for the coming winter. Right after it, we have received one contract after the other so this kept my full attention. Ok, I do not want to complain and it’s a very nice problem to have. In this sense, I would like to thank everybody to have that level of trust in our services.
When we go back in time, we will always find interesting statements and unsolved questions. Remember how long it took until people gave up to believe that the earth is flat and it will take even longer, that people accept that SkatteFUNN is an easy thing to do self and “no cure no pay” is just a casino business model. But we are on a good way. During the summer people told me about a new service where you get suport to do it self for just 10.000 NOK, but you still have to do it self. But as stated before, always good to have alternatives, so you can choose what is best for you. Choice is good.
But let’s go on to talk about the scaring myths of SkatteFUNN application making business models so I hope it will be a bit clearer after my short disclaimer.
It is my intention to put some light into SkatteFUNN and regularly upcoming questions I receive. It is not meant to be totally complete, comprehensive guide, covering everything and some details might have changed. Tax rules can always change. For this, please have a look at the websites of Research Council of Norway which is available in English under www.rcn.no or call them directly.
Let’s continue the games …
I am always surprised how many business models are available for just a simple thing as a SkatteFUNN application and seriously I cannot describe all of them. Sometimes they are sold like the man running through the streets and clapping his hands to scare the elephants away. So the smart woman says: “Look, there are no elephants in the street” and the man replies “you see …”. I can see the same logic in some fancy consultant sales arguments with “SkatteFUNN is complicated and difficult to get … ”
To make it simple, I will go into the two major directions so you can see the difference when I compare them later on.
Business Model: Payment per hour or fixed price on effort
This is a really simple thing. Someone is doing a job and you get an invoice. Same as you let repair your car, pay your plumber or chimney cleaner. They do a job and you pay for it. The fixed price concept is nothing else than agreeing on a price for the work you asked for – upfront. That’s all. So with what kind of prices can you exspect ?
When you look at the 35k NOK fixed price offer for a SkatteFUNN application (using less than 10 hours) they would ask for around 3500 NOK per hour. As longer they need, as cheaper they will be, on their own expenses. This is not very much actually since they need to travel, pay meeting rooms, and pay for the coffee and all the rest. And they have a max upper limit, so they take the complete risk (including money back guarantee) for the case it might take a bit longer to work on. Fair enough and I can only applause for such an offer.
Standard hourly prices I have found are between 700 – 3000 NOK per hour. I believe this is an acceptable range, since you need to calculate unpaid work like sales costs into it. In fact, this is a bit customer and project specific. To have a number to calculate with, let’s take 2000 NOK as the average hourly rate. This means we will get a price range for the estimated time T1 = 10 hours and T2 = 40 hours I have defined in one of my last posts.
P1_fixed = 35.000 NOK
P2_fixed = T2 * 2000 NOK = 80.000 NOK
The truth is somewhere in between that range I would say. If this is cheap or very expensive depends a bit on the estimated and final costs, which can be seen in the price model comparison later on. The downside is that you need to pay the invoice right away from your cash flow before you have received the tax money back. This can be seen as a “CASH FLOW” problem for some companies. Nevertheless, when you believe this is expensive, please compare this with your own costs structure. When a CEO of a company tells me that he only has used 15 hours to write and deliver the application self, these 15 hours are not coming for free and he also cost money for this job. So what is the hourly rate of a CEO ?
Business Model: No cure no pay
I guess, most people have understood that I do not like “no cure no pay” and what some consultants have made out of it in their greedy “Viva Las Vegas Business Style”.
No cure no pay is mainly meant that you pay to your consultant a percentage of the targeted sum you would like to claim (or get back) get back from the tax authorities. You will find a range of around 10% – 30% in the market as far as I can see, some have min or max limits, other different payment conditions. Nevertheless, you need to ask i.e. 25% of what ? AGAIN : 25% OF WHAAAAAAAT ?
Main thing is to keep in mind that SkatteFUNN has actually two major budget numbers. The estimated and the real documented costs.
The first will appear when you write the application, here you estimate a project cost budget and send the application in for approval. As shown in the SkatteFUNN statistics, most projects are overestimated and it does not matter that much because you will receive the tax money back on your real and documented costs. Not a big deal and I have mentioned this many times before.
BUT, there has been (happened some time ago, but I do not know if some consultants still dare to act like this) a business model around where consultants have used the estimated budget as the basis to calculate the percentage based remuneration for their services. Do you understand this ? Even more, the individual consultant who has estimated the SkatteFUNN budget got partly paid on the amount of what he has estimated for the project cost budget and received a bonus based on this. Do you see the conflict of interest ?
If not, please make a little test. Tell your people from tomorrow they can defined themselves how much they want to earn and see what happens. Are they going up or down in their income ?
You see, paying a percentage fee on the estimated cost budget is like defining your own income risk free. Since this number is not changing during the course of the project, there is no risk involved. STOP, there is risk (but the only one), exactly the moment when the client finds out how much he has to pay and rejects further cooperation. That’s why some consultants have asked their clients to sign some interesting long term contracts to keep them a bit longer their clients, happy or not. Also a way of doing business.
Anyhow, the business model “no cure no pay on estimated costs” shows the way these consultants have seen their clients, like milking cows. This is pure and unconstraint profit maximisation on behalf of the tax payer and such companies had have serious problems with their business ethics in my personal believe.
The seconds SkatteFUNN budget will appear when it comes to real and documented costs which is a much more common business model these days. Here you will find a “no cure no pay” concept where the business model consists of charging a percentage fee on the money you receive back from the tax authorities. This is a total different story as the previous calculation. Why ?
The project budget calculation is only estimated when you deliver the application, during the course of the project there might be changes for whatever reasons, i.e. the project experience some changes like cost changes, termination or you name it. As a result the actual calculation basis might be significant less, means the final consultant invoice might be much less. And for this you pay extra, risk means that you pay extra, always. In case of doubt, please ask your bank. Interest rate a function of risk for them.
So the consultant takes a major portion of the “make the application costs” risk on his side in addition that he gives you a supplier credit for a very long period of up to several years. He works for you and gets paid maybe 1-3 years later without knowing how much. So there is no cash flow problem for the individual SkatteFUNN applicants, since they only pay the consultant when the money is in, but for the consultant as such. Here you can see that there is a certain level of casino mentality involved. It only works because an actual rejection rate of SkatteFUNN application is not really existing.
So let’s take some final example for “no cure no pay” so you get a feeling for it.
The scenario is that you would like to develop this wonderful Scotty Machine to beam people through the internet. You have no resources left to write the application self; therefore you go for consultant support. Your first SkatteFUNN consultant is charging you on the estimated budget, the second on the final costs and only when you have received the money in 1-3 years.
So you will estimate that it will costs you 10M NOK to make the Scotty Machine and you go to both SkatteFUNN services provider and ask for the price, where both might recommend to you that it is better to go for a 15M NOK budget. Both will charge you 20% on no cure no pay and both need 25 hours to execute and deliver the job, including deliver the reporting templates. After 1 year of running the approved SkatteFUNN project you will find out that it is absolutely nonsense to beam people through the internet, but you can claim 2M NOK in real and documented costs for SkatteFUNN where you get 2M x 20% = 400.000 NOK back. Got it ?
So what do you pay to your consultants now ? (assuming 20% tax return rate)
For consultant 1, he simply takes 15M NOK x 20% x 20% = 600.000 NOK. Is that right ?
For the hourly rate you can calculate 600.000 NOK / 25 hours = 24.000 NOK per hour. Did you notice that you pay your consultant more than you have received back ?
For consultant 2 it is totally different. He calculates only the money received back (charges you very late) and takes full risk for his costs. This means 2M x 20% x 20% = 80.000 NOK. The hourly rate is 3200 NOK. Sounds reasonable, but only when the estimated costs are lower than the real costs. I will show some “friendly” graphs in my next post about it …
Please do a little exercise and take the numbers from your own SkatteFUNN project if you already have one.
So let’s assume that consultant 1 needs to change his business model towards consultant 2 for a reason. That’s quite of a challenge. First consultant 1 needs to change his business model and compensate for the difference in lost revenues somehow, beside that clients just running away after they have understood how much they have paid for a simple job. Clapping hands against elephants in the street is not good enough longer, you need to add value.
This is a very good example to show that a “change” process is by far not that simple. Consultant 1 needs to move into new areas, where he meets new competition which might be better, faster and cheaper. So putting more sales in place or a new “high fancy” multimedia website in new undertaker style will not help. Consultant 1 has to compensate the decreasing numbers with what ? That’s the trick. This is always a situation where management is soon or later coming into panic mode.
The point is that business model calculation on “might happen in the future or not” factor will always create such kind of discussion and it makes everything very confusing and unpredictable.
I personally would prefer to go for a fixed price on effort, so I have predicted, defined and transparent costs related to the job. And seriously, when you have a costs estimation of maybe 10M NOK in project costs, cash flow is not really the biggest issue.
Anyhow, “no cure no pay” business models have a certain casino factor involved, but when people want it, people get it. When there is a market demand, there will be a market offer. But I am still surprised that people sign fancy contracts and ask me afterwards how they can come out of this, after they have understood how much they really pay. That’s why it is so important to give people a choice and the information to make one.
Finally I have no clue why, but when I hear about this “no cure no pay” thing, I always see Elvis Presley in his white glitter dress in front of me, singing :
Viva Las Vegas, Viva Las Vegas ….
So I hope the past group of posts gave you a sound of understanding what most people are talking about when they complain about SkatteFUNN consultants and their prices. Fact is that you simply cannot say, which one is good or bad (except this one with estimated budget which was pure milking people), it is highly depending on your costs actually. So let’s look into this next time when I do some number crunching and present some fancy graphs. Actually I want to put numbers on the table so people can compare on their own. It is always good to have an own opinion and choice.
I hope you have enjoyed my todays writing and never forget to press LIKE and share it with other.
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