Are you looking for a consultant to help your institution negotiate or evaluate either a renewal or net-new solution set agreement for your core and/or ancillary solutions. One may offer a flat pricing model and the other a percentage of savings model for their compensation. CCG Catalyst will walk you through the advantages and disadvantages of these models and help you understand what model makes the most sense for your firm. This webinar will outline and describe the steps involved with an evaluation project, what is involved with a contract negotiation, how each consultant compensation model works, the pros and cons of each model, and how to determine which is best for your institution.
Terrie Cloud [00:00:06] Well, good afternoon or good morning depending on which part of the country you are in. I am Terry Cloud, Principal at CCG Catalyst Consulting Group. Welcome to our webinar today on Evaluations: Fixed Fees versus Percentage of Savings, talking about how consultants are compensated to different models. And we will talk about pros and cons of each. Housekeeping item if you have any questions along the way, feel free to enter them in the chat window and we will certainly address many of those as we can at the end of the webinar.
[00:00:40] So our agenda for today, pretty straight forward, I just finished a few minutes talking a little bit about CCG’s background. For those of you who are not familiar with our firm, before we talk about compensation models, we talk about what’s involved with a systems evaluation and contract negotiation. So we’ll go through the steps involved with that and talk a little bit about how CCG’s model is different than our competitors. Well, then talk about the two compensation models, fixed fee versus percentage of savings. We’ll talk about how we might be able to help for those of you that might be interested in some assistance. And again, as I said, we will leave some time again for questions. Should there be any.
[00:01:23] So just a little bit about how CCG Catalyst Consulting Group. We are a strategic advisory firm. We have not only US, but international clients as well. We have four locations around the world. We’ve been in business for over 20 years. We’ve delivered over a thousand projects and negotiate over two thousand fintech contracts for our banks and credit union clients. Certainly, this is not an exhaustive list, but this is a sampling of some of our current and past clients that we have worked with. We are a little bit different here and we are really big on forming long term relationships for our clients. We’ll talk a little bit more about that as we go along, but not uncommon for us to have multiple engagements with a client along the way. Our team is made up of former bankers, as well as former fintech executives, you can see our team listed there. One kind of unique thing about us, you see on the left hand side, you have a person responsible for research. So we do a lot of research for our clients on various topics, a little bit different about us. And we put out various research papers throughout the year as well. So what do we do with two unique things about CCG, one is we never have a set cut or process or engagement for a client. We treat each client uniquely and differently than others. And so we are really big on forming a customized approach for what a client needs whether it be strategic services, whether it be technology planning, system evaluations or whatever the case may be. We also treat our clients as a partnership and we collaborate with them. And we’ll talk more about that in a minute as well as it’s not uncommon for us to have multiple consultants working on an engagement and even sometimes multiple projects at once as well. This is your host Terrie Cloud. I’ve been in business over thirty one years. I am a former banker, also a board ancillary executive, and I’ve been in consulting in and around my career for close to 17 years. I specialize in evaluations. I’ve led over one hundred project management engagements for clients. I do love workflow, efficiency studies, strategic planning and technology planning as well.
[00:04:01] OK, so let’s get into the heart of the matter before we talk about how consultants in the industry are compensated. We need to talk about what’s involved in the process. And as I said, I’m going to talk a little bit about how our process is a little different than our competitors. So first off, what what do clients need exactly? Well, it’s all over the board. You see, this is not certainly exhaustive list, but these are of common solutions that a bank runs, that they need assistance in evaluating sometimes with all these things. Right. Sometimes it’s core, EFP, digital banking documentation, et cetera, et cetera, for the whole thing. Sometimes it’s just a couple pieces of those or sometimes just one piece. We do, for example, a lot of digital banking only evaluations for clients. They want to stay on their existing core solution, but they want to change out the digital banking solution or might be their own processing solution or whatever the case may be. So that’s how we tailor each engagement differently, is understanding what a client wants to evaluate, whether it’s all of these solutions, some of these solutions, or maybe a single solution. The other thing we help clients do is figure out are they what we call a single vendor institution or do they want best of breed? There’s no right or wrong answer to that. There’s pros and cons to both of those strategies. And through the process that we follow, we help evaluate which one makes the most sense. Sometimes it’s right to have all of your eggs in one basket. So sometimes the client wants everything from one vendor. They like to have one chosen throat, so to speak. In some cases, others want best of breed. They want the best digital banking package or they want the best EFT solution, the best accounting package, whatever happens to be. Again, there’s no right or wrong answers. Every client is different. Everybody has their own different wishes, wants and desires. And through our process, we help design what makes us. We have a very unique evaluation process here at CCG, we call it the 4D Approach, which has been trademarked. So you can see in the diagram here, there’s really four phases or pieces of it. The first one is discovering right before we even talk about what to evaluate or what systems to dilate or what vendors to look at. We have to understand that the institution, they have to understand where they are today. We want to understand what’s working well. We want to know what’s not working so well. We want to understand what they would like to have in a new solution. We like to understand what products or services they want to offer that they can’t today because of technology. And we do that discovery process through what we call information gathering. So we request from the institution a whole host of things, their strategic plan. We have a technology survey. We understand who the players are. We understand who the executive team is, a whole host of documents that we request. And through those documents, we get to know the institution pretty well. And that’s part of the discovery process as well as we do interviews, as well as site visits and interviews with the heads of state of the institutions to understand those things as well. The next thing is we define the business requirements. We understand what they have today, what they need for tomorrow, what those requirements are, and a very detailed manner. Now, a lot of firms skip to the next phase, which is kind of dictating or telling the FI what solutions or what vendors to look at. And we do a third process before we get to that stage that we call diverge. And what that really means is a collaborative effort with the FI. We go through with them and a sit down collaborative, a two way conversation, what we discover, what the business requirements are that we found out and do they agree. And let’s collaborate on what the strategy might be a very different approach than our competitors. Then and only then do we take those three pieces. Everything’s fine. They diverge. They then we come up with the defined strategy. Then we we present to the institution of here’s where we think you should give your vendors. We think you should look at. Here are the solutions we think you should look at within those vendors and why and that’s why we call them a very different approach than than our competitors. So what’s involved with an evaluation? Well, it just starts out with requesting information again, invoices, strategic planning technology survey or charts. The list goes on and on and on. Then we go and visit DFI, an uncovered network. I’m doing a engagement right now with a colleague and we’re doing everything virtually remotely. So lots of conversations via phone, but hopefully we get through covid here in the next couple of months. But we like to visit the FI one on one on site to look them in the eyeball, so to speak, and understand. So we interview the staff again, what’s working, what’s not working, what the desires, what are the business requirements looking for? Have they looked at some solutions today? They have. Great. What are those and their feelings towards that? All those types of things we document once we’ve gone through that stage, then we do a gap analysis and a business requirements document understanding where their gaps are today, whether there’s requirements in looking at a new solution and a new vendor. Yeah, but that’s just core or whether that’s the whole shooting match or just certain pieces and parts. Then we create what’s called a valuation chart. This is just basically a document outlining what we’ve heard, what the valuations look like, the vendors, the solutions, the timeline, all those things. Then and only then do we create the RFP request from the get sent out to the vendors that we think FI should look at. We have a unique process here at CCG because we have that electronically. So it’s an electronic RFP called the CCG Catalyst Evaluator that the vendors fill out online. Actually scored as well for their answers. And that’s obviously presented back to or made available to the FI for review. Then we look at the vendor options and the solution set, whether it’s a couple, three or four vendors, depending on the case, we then get into vendor presentations and those are typically shorter presentations for what we call a thirty thousand foot level view of the vendor and the solution. And then from there, we do what’s called down select. We start out with four vendors. Then we now select that now typically to two. It’s very important to keep two vendors into the end and I’ll talk more about that. And then it follows two down select vendors. We typically then we’ll set up what we call deep dive demos, multiple day demos into the solution or solutions if we are looking more than just core for the FI to evaluate. We also provide as part of this process, work cards so they can score the vendors and we get a sense of how the bank is feeling. We certainly don’t make the decision based on scorecards. It’s just like a political poll gives us sort of a pulse of how the institution is feeling. We certainly help the FI by doing reference calls and site visits and then all that information hopefully we come to a decision who the vendor of choice or finalist would be. So that’s kind of the evaluation process. Now, that’s really the first piece, the second piece that we see negotiating the contract, right? So that has several components as well. Throughout this evaluation process, we develop a total cost of ownership model. Now, looking at the FI’s current costs with their current vendor, but the new costs either with an incumbent vendor and or new solutions to look at. We didn’t go through pricing concessions with those vendors, particularly the two finalists. And as you can imagine, those price concessions aren’t just once and done right. It’s a multiple, multiple rounds. Sometimes it’s five, six, seven, eight, sometimes 10 plus rounds of pricing concessions. Once we feel like we’ve gotten the price to where it needs to be. And by the way, we’re very fair to the vendors. We understand these vendors are a dollars in revenue and income, because that’s the way they grow and make their products better. But we also know where they might be gauging on that side. So what goes through where we think the price is fair and balanced? And then and only then do we present to those businesses, those two finalists we call additional terms and conditions. These are all things beyond just a plain vanilla contract from a vendor. As you can imagine, most fintech vendor contracts are very one sided towards them. So we like to add in what we call business terms that helps level the playing field. These terms are all around, as always, conversion process, trading, custom development, custom hours, operational reviews. The list goes on and on and on and on. Now, it’s very important that what we do here is never present those terms and conditions until we’ve exhausted pricing. The reason we don’t present those same time is that we find that if we do that, vendors will forego price for a term or vice versa. So we try to get the price as low as we can. Then we get them off the term so they can’t backpedal on price. Then we come up to the final contract negotiation with those two finalists and then the vendor of choice. And then we go through a contract review process where we review those contracts. We sure set pricing and terms are accurately reflected. And then most FIs will have a legal review as well for the legal fees. And then hopefully that will lead us to a contract execution for the finalists. Now, as I mentioned earlier, it’s really important that we keep to vendors and to the very end. You never know what kind of discounts you can get with one vendor pitted against the other. And it doesn’t happen often. But once in a while, the FI can’t come to terms with their quote unquote lead vendor. And they end up going with their quote unquote, second choice to a good vendor choice. But sometimes that happens doesn’t happen often, but it has happened once in a while. So that’s the evaluation phase and then the contract negotiation.
[00:14:55] Now that leads us to the matter at hand. In that process, how our consultants are compensated. Should a FI hire a consultant to help them through this evaluation process? Well, there’s two models. There are the percentage of savings or total vendor discount model versus what we call a flat fee and or a retainer. Now. I am not here to dictate one is better than the other. I’m here to outline the pros and cons of each and for you to make a decision on your own, should you want some help. And we’ll certainly outline how we’re compensated throughout this process as well. So let’s first talk about percentage of savings or total discount. So how this works and you can see the two examples on the screen. Let’s say a particular FI decides to renew their fintech contract with the incumbent vendor. And let’s say that incumbent vendor pricing run rate is four million dollars over the term five years, seven years, whatever the case may be. And then through the evaluation and contract negotiation process, we are able to get that pricing down to three million. That means the consultant that is hired is paid on a percentage of that million dollar bill. I’ll dive in a little more detail here in a minute. And again, there are firms that do this model and their firms that do what we do, which is the flat fee or retainer. Another example of how this works is, let’s say the current incumbent pricing again is four billion dollars and they end up looking or making a change to a new vendor and that new vendor initial pricing is four and a half million dollars over the term. And then we‘re able to get that down to three million. Again, the the consultant is paid on a percentage of that one and a half million delta. And typically the firms offer this model are paid on whichever is more. Now, there are a couple of things that make this model a little problematic. Some consultants will tell you that do this model, hey, we’re going to work harder to achieve as many savings as possible. Well, any consultant in this space that is reputable is going to work just as hard on either model to get a client the best deal possible. And some consultant in the state to do this will do initial estimates of the cost savings. And the problem with that is typically those are on the low end. So, for example, in the model that I just explained, let’s call you know what do the sales process and we think we can save you four hundred thousand dollars and then we end up saving them or that consultant I should say, kind of saving them over a million dollars. And the average percentage of these firms that offer this is around twenty two percent of that savings. So that means the difference of what a FI was expecting to pay that consultant of eighty thousand, i.e. twenty two percent of that four hundred thousand versus two hundred twenty thousand and twenty percent of that one million. So huge discrepancy. And a lot of times when that happens, it creates unnecessary animosity because they’re expecting to pay one price and the price is doubled or even three or four times higher. And sometimes it requires the renegotiating of that fee sometimes in the middle, and then that creates the ability not to have a business and not having ongoing advisory relationship. Again, that’s just some of the challenges with this particular model. On the fix fee or month retainer model, this is where a FI is charged, just flat X dollars for the evaluation, and then sometimes there is a percentage. If we’re able to save the FI X dollars above the current run rate. So it’s kind of a combination model. And the other model is just flat dollars per month that are paid for however long the project takes. Whether that four month project, whether it be an eight month project or a 12 month project, is just one flat fee per month. And that certainly motivates all parties to go as fast as possible in terms of getting the valuation negotiation done. So in this model, the consultants were just as hard as listening to consultants going to try to get the best deal for the client, regardless of which model. This model’s relationship based, because the costs are fixed, they’re known and allows for the consultant or consultants to hopefully have repeat business and or additional projects down the road. It’s fair and equitable and allows for reputable clients along the way. And that also creates a long term customer relationship, so it allows for multiple engagements, allows for simultaneous engagements, and here at CCG particularly we have a very much a team approach. So not only are you find one consultant, it’s not uncommon to have two or three consultants working on a couple of projects right now with a couple of colleagues. So, again, this is very much a team approach. Certainly you have a lead consultant, but you’ve got people behind that to assist and help. Also allows for more vendor involvement and issue resolution during the evaluation and even after the engagement is over. Should the vendor not live up some of those terms that were negotiated, we are there to help them and work through those issues at no additional cost. Also allows us to review the pricing after everything is said and done on their first couple months of invoices, be sure they’re accurate and again resolve any discrepancies for the FI. And again, making sure that vendor adheres to those terms, whether it’s two years down the road, four years down the road, whatever the case may be. Now, a couple of things just to talk about the evaluation process, a couple of things that are important is what is the length of the term of a kind of an engagement? And again, every five is different. I have negotiated three year deals with the clients. I’m usually 10 plus years. Five to seven is kind of the average in today’s world. But again, we work with the client through that evaluation process to understand what a new agreement term should look like, whether that’s renewing with the incumbent vendor or vendors or whether they’re looking at a new relationship altogether. Again, no right or wrong answer. Everybody’s different in terms of that length of that agreement. The other thing to point out about contract negotiations and a lot of FIs don’t realize this, is that even if you have, say, a year or a year and a half left on your existing agreement with your incumbent vendor and you decide or the FI decides to renew with that new vendor that new pricing starts typically the month after that renewal agreement is executed, even though you may have a year or year and a half or two years or whatever happens to be left on your current agreement and current pricing with your incumbent or with the incumbent vendor, that new pricing can start right away, which translates into more savings for the FI that can be realized very important. Another thing we get asked a lot is how far in advance should we start the evaluation process? Ideally, that should be anywhere from eighteen to thirty six months ahead of your current contract expiration. That gives time to either renew that agreement in case you end up renewing. You get additional savings and or gives you time to do a full evaluation. If the FI decides to make a change, it’s time to go through that evaluation process as well as the conversion. And conversions in today’s world is anywhere from eight to 14, 16 months, depending on what’s involved in the size of the FI. So that’s why you need plenty of time for the evaluation process. So that’s a little about compensation model. Again, percentage of savings versus flat fee or retainer model.
[00:23:31] Now, how can seek help in this process, so we are in all fixed fee or monthly retainer model, we are not a percentage of savings. We feel this is a very much a relationship based model, as I said, allows us to have a team approach because the FI pays the same price, whether we have one consultant or five consultants working on the engagement and again, it’s not uncommon for us to have ongoing engagements or simultaneous engagements, I should say, to help and advise our clients along the way. It’s not uncommon for us to start with a strategic plan for a institution, move to a technology plan, move to a potential evaluation contract, move to helping them manage that conversion, et cetera, et cetera. So we really like the team approach relationship based models form long term relationships with our clients accordingly. So some of the common engagements that we here at CCG, as I just mentioned strategic planning, technology assessments and planning and vendor evaluations, contract negotiations, project management. And again, as I mentioned earlier, we’ve got one person on staff that just does research. So sometimes we have an FI that wants us to research certain technology or certain vendor or certain new service that’s out there. And we do that work as well. This certainly isn’t all the types of engagements that we do here but these are the most common that we do.
[00:25:07] So I hope that was helpful for you. We left a little bit of time here for some questions if there any. I’m going to divert to my colleague Kelsey if there’s any questions that have come up.
Kelsey Teske [00:25:21] Hi yes, we have one question how long does a typical evaluation take and when should we start the evaluation process?
Terrie Cloud [00:25:30] Great question, again, all over the board if a FI intent is to renew with their current incumbent, which, by the way, we never go in with pre assumed assumptions right. We will do our 4D process which I talked about we find out what the best processes, but with renewal, that can be four to six months. If it was a true evaluation. Again, that can be six to 12, even 14 months, depending on what we’re talking about. Obviously, ancillary solutions, digital banking only or EFT only are going to be a little shorter versus doing a core evaluation versus doing everything, which is probably a very, much more long dated evaluation process. Looking at all the solution as well as core. Again, as I mentioned, timing typically eighteen to thirty six months ahead of an FIs incumbent agreement expiration is the best time to start the process. Great question.
Kelsey Teske [00:26:32] All right, and we have two more that came in and the first one is what is the typical term of a new vendor agreement?
Terrie Cloud [00:26:42] As I said we negotiate with anywhere from three years to 10 plus years. Everybody’s different again the average is five to seven, seven is kind of the new norm, but everyone is different. And again, there’s no right or wrong answer. Obviously, the longer term agreement typically not always, but typically translates into better savings or discounts and better terms, but not always. And again, everybody’s different, but I would say five to seven times the average. Again, through our evaluation process, we help figure out what makes the most sense for our clients.
Kelsey Teske [00:27:23] OK, and then the last one, should we consider a single, all inclusive vendor solution suite for our technology needs or go best of breed, which is better?
Terrie Cloud [00:27:37] Yeah, again, everybody’s different. There’s no right or wrong answers. As I mentioned earlier, it just depends on the FI again which way probably makes sense. I will tell you, though, not that this is universal, but even if a bank goes single vendor and again, I’m not suggesting one is better than the other, the pros and cons of both models. But we do find digital, particularly digital banking. When I say digital banking, online banking, mobile banking, cash management, Treasury Services, mobile bill pay that whole suite of solutions within digital banking. We do find that of all the ancillary solutions, digital banking usually is the one the FI will want to go best of breed with. But again, the vendors core vendors of digital bank solutions are sometimes are very good as well. But that is the one we find most often. Should a bank or credit union want to go outside for one piece? That’s the piece that typically do again that is not universal and not right for everybody. But we do find that the most common, quote unquote best of breed product, even within a single vendor solution. And obviously, the other thing here beyond term is the more solutions that you can bundle with a vendor again, that we translate to better pricing in terms. But again, it’s not the right answer for everybody. So FIs like to have this breathing breed, the best solution for each of those pieces, and that’s fine. So, again, through our process, we help figure out what makes sense and what’s right for our clients.
[00:29:19] That is the questions.
[00:29:21] Great, well I really to want appreciate everybody’s time this afternoon, I hope this was helpful. You have our contact information on the screen. Should you have any additional questions, feel free to give us a call or email us and we will be in touch accordingly and happy to help in any way we can with the initial discussion on your current needs or wants. I’m happy to do that. And with that, everybody is a great rest of the afternoon. And thanks for participating and tuning in today.
CCG Catalyst Consulting Group
CCG INSIGHTS FOR BANKS, FINTECHS, AND CREDIT UNIONS