It’s a business trick to get you to pay an amount you would NEVER pay if they asked you, outright, to pay that amount. This happens more than you realize and you don’t always get a choice – but you need to be aware of this business “evil” so you avoid it or diminish it as much as possible.
Examples:
Attorneys – They love percentages because you would NEVER pay them dollar-wise, what they can get with percentages.
Management Companies – The same is true with them. It sounds so humble to only take 30% of the growth. but overhead is 60%. And it is even higher if you are under $12,000 in collections. What a heist! They don’t tell you that only leaves you with 10% of the growth at best! They are a partner and didn’t even have to buy in!
Government – Federal, State, SS, Medicare, Property, Sales, and Estate Tax. All can easily add up to 65% or more of everything you make. Can you believe that? You have no idea how much you are actually paying in taxes because it is cut up into different fragments of “small” percentages. Of course, you would never pay it – but when it is just 7% here and 7% there – you think it is no big deal. But when you add up the 7% Sales tax and the 7% State tax and the 7% SS and the 40% Federal – well, on and on and on it goes!
So let’s just say you actually go back and add it all up (which you should do) and it is $200,000 and instead of charging you a percentage they just sent you a bill for $200,000. Would you do it? No – you would say you can’t afford it – and you CAN’T! So how did they get away with it? Percentages!
So what should you do? Decide on a fair fee for a fair service and pay that. You should be fair – always – but not get burned. Whether it is associates, staff, collections, tax work, accounting work, buying a practice or anything else – if they want a percentage – they want more than they deserve!
Whenever it is possible – and like with taxes it isn’t always possible – just say no!