The Cost Plus Model
What is cost plus? In the Corporate Solutions world the cost plus model is utilized when a real estate firm has dedicated resources either on-site or off-site for a client (the end user). These resources (Account Managers, Transaction Managers, Lease Administrators, Design/ Architects, Project Managers and GIS professionals) are paid for by the client, typically in monthly installments. Specifically their base salary, bonus, benefit load, technology, leadership management, SG&A and profit are rolled into the monthly fee paid to the vendor.
What are the benefits? For service providers it hedges their bet and allows them to become less commission centric with that account. It also allows them to keep and train talented people and build their organization. Further, the service provider is better able to weather the storm when the economy becomes challenging as we have experienced in the last couple of years.
For the end user this model provides certainty. Most mid-size to large firms understand the base salaries, and benefit loads and profit margins. They have similar models in their own business plans and pursuits. There are also able to get dedicated, committed and experienced professionals without actually having to hire them internally. Scalability (increase or decrease staff depending on their business) for the end user is extremely important. In France, as an example, terminating employees is a long and expensive proposition. Utilizing third parties and the cost plus model makes a lot of sense. Lastly, for the end user this model allows for greater transparency. Typically alliance commissions fund part of the monthly expense.
In conclusion the end user is able to participate with commissions on an up year and the service provider is able to protect themselves in a down year both sides win.
Gus Poulopoulos is Executive Managing Director of Corporate Services in NAI Global’s New York City office.
About the author
NAI Global is the premier network of independent commercial real estate firms and one of the largest commercial real estate service providers worldwide. NAI Global manages a network of 5,000 professionals and 325 offices in 55 countries throughout the world. NAI professionals work together with our global management team to help our clients strategically optimize their real estate assets. NAI offices around the world complete over $45 billion in transactions in a typical year. We also manage over 200 million square feet of commercial space. In 2009-2010, NAI Global received top industry rankings and honors: Named Global Broker of the Year by Private Equity Real Estate magazine Ranked # 1 Network and #3 Overall Corporate Services Provider in Watkins Research Group Survey of Corporate Real Estate Executives Ranked #4 on Lipsey’s Top 25 Real Estate Brands Ranked #6 on National Real Estate Investor magazine’s Top 25 Brokerage Organizations NAI Global is based in Princeton, New Jersey. A dedicated 70-person staff, strategically positioned around the world, provides management, technology, marketing and corporate services support to its network of real estate offices.
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