How to Uncover (and Avoid) the Hidden Costs of Working With Professional Service Providers Here's how to identify red flags and forge effective partnerships that save you time and money.
By Wei Hsu Edited by Chelsea Brown
Key Takeaways
- Awareness of hidden costs in professional service contracts is crucial for businesses to avoid unexpected expenses and ensure effective partnerships.
- Recognizing common tactics like bait-and-switch pricing and bundled services can help businesses avoid hidden costs and make informed decisions in partnerships.
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Consumers are accustomed to seeing hidden prices and "fine print" deals from cable and internet providers all the time. We're familiar with tactics like a low one-year introductory price before a cost spike or automatic renewal unless you cancel 60 days in advance or easily missed add-on services that you must cancel or be charged for.
Unfortunately, some business consultants and other professional service providers also resort to similar tactics. But if you know what to look for, you can avoid these hidden costs.
Related: The 5 Essentials of Choosing a Consultant
Hidden costs
Effective partnerships should save a business owner both money and time. Not all service providers engage in price inflation tactics, but being on the lookout for these red flags can prevent you from incurring "surprise" costs down the road.
Bait-and-switch pricing:
Beware of service packages that look too good to be true because, all too often, they turn out to be just that. An initial quote may come in extremely low, but then the comprehensive services you thought you were getting are actually tacked onto the initial low rate, making the total cost much higher.
For example, an HR services provider may quote you the monthly fees for payroll without mentioning that first, they must charge you for onboarding/hiring that person. Businesses may find themselves tied into contracts that include a range of extra "fees," bumping up the price for needed services. Always ask for a detailed list of included services and clarify pricing in advance of extra services you may want down the road.
Bundled services:
Some consultants may bundle various services into a single package at a seemingly attractive price. This can make it difficult to understand what exactly you are paying for and where the markups are. However, some components within a bundle may not be optional, and businesses end up paying for features they don't need.
As an example, consider an IT services bundle that offers software installation, along with virus scanning and maintenance. If you don't need the ongoing maintenance plan or can handle that in-house, can you opt out and save the monthly fee? Or does the provider bundle that in so they can afford to offer other entry services as loss leaders?
Specialized services without specialized skills:
Service providers may offer high-quality solutions with specialized services but the contract does not consider the specifics of a project because the provider lacks the specialized skill set or knowledge. For example, a construction firm may hire a marketing company to help make marketing material for its prospects, but if the firm lacks industry experience, it may require too much ramp-up time to deliver an effective marketing plan.
In the end, a business may be paying for the exact service it agreed to (marketing help) but costing the business additional time because it creates incorrect insights on construction services and requires excessive revision by an in-house team member. Be sure professional service providers have sufficient industry experience in your sector. Ask if you can speak with some satisfied customers they have worked with in the past.
Related: The How-To: Choosing A Consultancy Service For Your Business
Work smarter, not harder
Working with external consultants or providers can help you complete key projects that an internal team doesn't have the ability or capacity to finish. Here are some tips to avoid hidden costs and ensure a win-win partnership.
Look for an accessible partner: Avoid hidden headaches and delays by contracting with a reputable provider that provides easily accessible account managers you can talk with directly, rather than a "help desk" approach, where you submit a ticket and wait. Make sure to ask how they handle questions and issues.
Shop the market: If you receive a quote from a service provider that you have reason to doubt or don't fully understand, compare the cost with those of a competitor to highlight inconsistencies. For instance, if you receive a quote for service, ask if they can itemize it so you can minimize surprises down the road. You can then go to another service provider and ask for an itemized quote for comparison, giving you the opportunity to fully understand pricing differences.
Read the contract carefully: Service fees can be applied by usage tiers or a fixed fee-based model. Consider the volume of the service and how it will fluctuate in the future. For example, if you negotiate tiered-based pricing from a data provider, how would your cost change if you needed less data for a period of time? Would you be better off negotiating a lower-tier service plan at the outset?
Be fully informed on whether or not your provider's contract is offering you a "cable company pitch:" a low yearly start-up rate followed by a significant fee when renewed.
By familiarizing yourself with these tactics and asking the right questions, you can avoid hidden costs and forge effective partnerships with business consultants and professional service providers. Remember, a successful partnership should save you both money and time in the long run.
Related: These are the Do's and Don'ts of Working With a Third Party Service Provider
