The True Lifetime Value of a Partner: Merit or Cost?
Lifetime business partnerships are difficult to find and even harder to maintain. Many companies base partnership decisions on price, it is the bottom line after all. This is a mistake, price will always be a factor but it should not be the only one. Merit and integrity are the backbone of any true business partnership that lasts a lifetime. In this blog, you will hear a story of two companies that made a choice. One chose a business partner on price, and the other chose based on merit, the results may surprise you.
The Story of Company A: Choosing on Price
Whether you are scrolling through your favorite news source, like the Wall Street Journal or just opening up Google there are stories plastered everywhere about the state of the US economy. Will there or won’t there be a recession? Consumers spent billions on a Taylor Swift concert but cannot afford their student loans, what does this mean? What does another government shutdown mean for the economy?
This constant deluge of stories can slowly seep into your personal and business decisions. Subconsciously, you become obsessed with making the best choice based on price. This was the case for let’s call him Ralph, a CFO for a leading software company for home improvement contractors. Ralph has hundreds of clients with accounts that are overdue, he needs to find a partner that can collect what is owed while also maintaining the clients.
Ralph shops around, searching online and getting a few referrals. Deciding to hire an Accounts Receivable Management (ARM) firm that offers the lowest contingency fee. Feeling confident in his decision as he believes that this will save the company a significant amount in the long term.
The Story of Company B: Choosing on Merit
The story is about to take a turn with Stacy. Stacy is like Ralph, she is a CFO but runs finances for a major manufacturer. Stacy has seen the same headlines as Ralph: “Recession Looming”, “Student Loans Stalling Consumer Spending”, “Mortgage Rates Spike” etc. Facing the same market and challenge, Stacy talks to multiple ARM firms, considering price but also asking essential questions like:
During the collections process how do you protect our brand’s reputation with our clients?
How does your collections process differ from other ARM firms?
How do you ensure your collections process aligns with our internal processes?
The firm's answers varied widely, revealing holes and cracks that could have cost Stacy dearly if she decided to hire them. Although their contingency fee was slightly higher, Stacy decided to partner with a firm that she felt would be a better partner long term. The million dollar question both literally and figuratively is, did it pay off?
The Business Benefits of a True Partner
To wrap up our story, we will ask you, the reader, a very simple question. What matters more: a low contingency or a high collection amount? I will let you ponder, while I tell you what happened with Ralph and Stacy.
Ralph had a 10% contingency fee with his firm which was great upfront. The firm did not take the time to understand his company's existing processes and service agreement. This resulted in a high-volume of complaints landing on his desk and a low collection rate.
Stacy’s result was different, her ARM firm was very diligent in understanding their business, processes, and service agreement. While her contingency fee may have been slightly higher, her firm ended up collecting a significantly higher amount than Ralph’s.
So I ask you again, what matters more in today’s economy?