At the risk of making a sweeping statement, most professionals have encountered resistance to fees and more often than not most will feel uncomfortable and offer a discount or some sort of concession relatively easily.
From our research and by talking with professionals all over the world, we know that fees/margin/profit (which all mean money) is being left on the table or handed back to clients and prospects every working day of the year – and probably every other day too!
It’s true that when business conditions worsen the tendency to crumble increases when price is challenged and to some extent the opposite is also true.
Or is it? The PACE Partners have conducted more Fees Negotiation Skills workshops in the last 12 months than in the last five years which doesn’t make sense, does it? Haven’t business conditions improved?
That of course depends on who you are speaking to, which sector they are in and definitely where they are geographically. And yet, even in sectors which have seen a distinct improvement in client confidence and workflow in areas that have seen a clear reversal of the downturn, discussions about fees are still difficult and discounts are still being offered all too easily – sometimes up front, without any discussion at all! It seems that old habits die hard, if ever.
One of the key ingredients to any discussion about money is confidence. A fee-earner who is confident about their hourly / daily rate will be less likely to give a discount when pressured by a client or prospect. Naturally the opposite is true too – a fee-earner who is not sure about their fees in some way will be more likely, perhaps very likely, to offer a discount when put under pressure.
So the question is, what makes one fee-earner more confident about discussing price than another?
There are four main factors:
When getting to know a firm we may be working with in the future, we often conduct ‘Insight’ interviews. These discussions are in no way prescriptive but the subject of how a fee-earner addresses the subject of money with clients often comes up. We therefore ask “What do you say when a client says you’re too expensive?”. Ninety-nine times out of a hundred the response we get is either that they simply don’t know what they say, or it’s something like “Well, I tend to say that we can have a look at that for you and maybe look at a discount in year 1, or something along those lines, and maybe ask them what they were thinking of….?”
The basic truth is that very few professionals practise the answer by regularly challenging their colleagues or by being challenged by their colleagues and yet it is so easy to do this. Simply walk past a colleague in the corridor and say “Mike, you’re too expensive” or visit a colleague in their office and say “You’re too expensive”. In time, the reply* will become second nature.
Confidence is bolstered by having a lot of client work to do and more so by knowing that there is plenty of work coming through the pipeline. This isn’t too complicated of course. If plenty of clients want to pay for our expertise then why would we be inclined to offer a discount for a contract when being challenged on price?
Yet this happens anyway, despite it being broadly illogical. Often the reason is that it’s just a habit – it’s just what we think we need to do in order to win a new piece of business even though there’s plenty in the pipeline already. Yet despite the fact that this doesn’t make any sense, it happens far too often.
Not much thought (please excuse the pun!) is given to the mindset and thinking that lies behind a discussion about fees and yet what the client is thinking is fundamental to how the discussion will go:
If the client is thinking along the lines on the left as we look at the diagram above, then the discussion is not going to turn out well – either there will be some significant discounting to get the business or the client won’t instruct us at all. However if the client is thinking more on the right hand side then the discussion is likely to have a more positive outcome for both parties.
The really important thing about this diagram is that it is our job as a professional to influence the client to be thinking on the right side. That type of thinking by the client demonstrates good quality business development skills and behaviours on our part.
But of course there’s another mind at work:
Clearly if we have any negative thoughts, such as those on the left, the discussion is not going to go well. On the other hand, if we are thinking on the right then we are in good shape and much less likely to offer a discount when our fees are challenged.
Broadly speaking it is the combination of a client and the fee-earner thinking on the right which is likely to result in the fee-earner winning the work at a good price without any, or very little, reduction in price, margin or profit.
A lot of it comes down to the fee-earner knowing what they are doing when it comes to discussing price or fees and knowing not only how to negotiate but also that the negotiation on fees started from the very first moment they met the prospect way back when – and arguably even before that.
In other words, outstanding business development skills and behaviours from A to Z can very often mean that there is no discussion about price at all. Why? Because the prospect is so convinced by our solution and the value we will bring they want us to be their adviser or provider regardless of the price.
That’s the perfect scenario and entirely achievable.
Nevertheless, discussions about money will still take place but this can be conducted in an open, collaborative manner and end up with a negotiated outcome which both parties are genuinely happy with. There’s a lot of process in this which underpins everything but by way of example, when faced with the statement “That’s too expensive” a fee-earner who has a strong pipeline, who has worked diligently at earning credibility with their prospective client of the future, who is thinking on the right hand side and is confident that the client is too and who has practised negotiating and also this scenario over and over again, who instead of being defensive about the price will know EXACTLY what to say.
(to be continued…)
*The reply is in Part Two.
- Getting more people out there Published 8th December 2011
- Building business relationships Published 22nd November 2010
- Can you grow your revenue using social media? Published 26th Oct 2010
- Values Published 7th January 2011