Discussions with potential customers or professional colleagues time and again show: There are indications as well as a lot of room for maneuver when pricing interim management. Complete transparency helps to find a fair contract model.
The 1% rule is a typical starting point for initiating contracts. This states that the daily rate for interim managers should be one per cent of the gross annual salary of the position in question. For example, if the target salary for the CFO vacancy to be filled is EUR 150k p.a., the daily rate should be EUR 1,500.00 based on the 1% rule. This rule is often the starting point for price negotiations. You should also be aware some other important factors:
Has a so-called interim management provider been instructed? If a suitable interim manager is introduced and the contract is prepared by an appropriate service provider, the costs will be included in the daily rate. Typically, this is between 18% and 25% of the total price. In return, the provider assumes the marketing, recruiting and screening of candidates, obtaining references and other individual services. From the interim manager’s point of view, this means that between 25% and 35% of the provider’s commission is typically added to the daily rate he/she wishes to achieve.
Expenses are often only discussed at a late stage and are subsequently dismissed as incidental. However, they are often not insignificant. If costs are incurred for traveling and overnight stays, the effective average daily rate can quickly reach 20% or more above the calculated basis. Provider commission is typically not charged for this price element. Tip: Agree transparent expense flat rates or “all-in” prices that include expenses.
Remember that the typical average workload of interim managers is around 140 days each year. Only these days are billable. The rest of the working year is filled with acquisition, constant availability updates and maintaining contacts. And, naturally, further training and recuperation so that interim managers are fresh for the start. Days on which interim managers are unable to work due to holiday or illness are not charged.
Typically, notice periods are freely negotiable. In that respect it is important that the company employing an interim manager is certain that he/she will not “run away” if things get difficult or the interim manager receives another, better paid offer. On the other hand, no company wants to continue paying costs if an assignment has become obsolete because another solution has been found. Suitable arrangements are also available for this. Please ask.
Health insurance and pension insurance etc. costs – Employer’s social security contributions are not incurred by companies at which interim managers work. Regulations on bogus self-employment are to be observed. Companies often see the permanent replacement of the position as an alternative to the rapid deployment of an interim professional. What cost factors need to be considered in comparison?
Filling the position externally normally entails recruitment costs starting at 25% of an annual salary. If you compromise when filling the position quickly and subsequently realize that the position has been filled incorrectly, a free replacement clause is an advantage. However, it is not a guarantee. Recruitment costs remain.
After deducting holidays, illness and training etc., an employee usually has a maximum of 220 workdays. These should be included in a comparison. Other costs such as an employer’s social security contributions and the cost of using company cars increase the gross annual salary of salaried managers. Expenses and training costs are also included.
Once you understand all these directly comparable costs, then discuss with potential interim managers what they can achieve and consider the potential they bring to the table. Nothing will then prevent a successful collaboration.