A new era of cost cutting has begun. Most firms have had clients citing “Global Financial Crisis” and “uncertain economic times” as excuses for pressuring you on fees. So can you hold the line on fees – and you should you?
A recent discussion amongst my fellow marketers was prompted by a firm which had received a letter from its number one client stating that they required a 10% fee cut or they would take their work elsewhere. If you received this letter – what would you do?
There is no absolute right or wrong answer but here are some suggestions for dealing with this, and other, fee negotiation situations:
- Don’t be insulted – Just because someone wants to pay less for your services doesn’t mean they think less of you. Professional service fees are open for negotiation – just like anything else.
- Be open to discussion – If the client involved is important to you, don’t just send a letter in response. You need to be open to discussing the client’s reasons for making the request and how it impacts their business.
- Commodity vs Specialty – If you’re negotiating you may be in a stronger or weaker position depending on the type of services you provide. The easier it is for the client to take the work elsewhere, the more flexible you might need to be.
- Fees vs Budget – Many clients have been taught, by professionals, to focus on the hourly rate when looking at value. If you discuss communication, delegation and workflow issues with the client you may be able to find a way to reduce the overall spend without reducing the hourly rate. Working more efficiently for less money beats working just as hard for less money.
- What else is up for negotiation – If you agree to meet the client’s request for a reduction look for the silver lining in it for you. Will the client agree to faster payment terms, a minimum annual spend or to send you work currently being done by someone else?
- Remember the basics – While it might not address the immediate question never forget the basics that help you stand out above your competitors and help you justify those hourly rates. Client service that exceeds expectations, knowing the client’s business and industry and advice that provides practical solutions. If you’ve been getting all the basics right you might need to remind the client.
- Forget the hourly rate – If your client knows exactly what each job is going to cost the hourly rate is no longer an issue. Allowing the client to make the value decision at the outset based on a fixed fee might remove their concern over uncertain hourly rates.
- Value vs Cost – A fundamental of successful selling in professional services is to understand the value the client places on the service or result. If your fee meets their expectation of value the negotiation will go far more smoothly.
- Frequent flyers – We all know how successful these programs are. In the professional service area this principle can be applied to provide discounts to clients based on volume. If you have certainty about how much work you’re going to get before the discount kicks in you might leave the negotiating table a little happier.
So what did the firm in question do? They worked out their annual billings for 2008 and offered the client 10% off that for 2009. But only if the client agreed to a retainer so that each month the client would make a payment based on that amount. They also sought more work from the client in areas previously undertaken by other firms.
So perhaps it’s not a matter of whether you hold the line on your fee or rates. It’s really a question of determining the value for the client and what opportunities arise for you when your firm receives one of these requests.
Thanks to Larry Bodine, Apollo Business Development and the members of the LawMarketing Listserv for providing this topic and many of the suggestions contained herein.