Twice in the last two weeks I have been asked to drop my fees. And both times I’ve said no, even though I know that I will probably win the work if I lower my fees.
Am I mad? Arrogant? Misguided? Or I am just naïve in my negotiation tactics around fees?
Actually, this is a dilemma which every professional faces from time to time – a potential new client comes back to you and asks you to reduce your fee. It’s a legitimate fee negotiation tactic and I conversation which I hate having – but avoiding it, doesn’t make it go away.
If a client asks you to drop your fees, there are a couple of things potentially going on:
- they don’t have the budget
- they don’t understand the value which you will bring
- they are trying it on
Before, you decide on a course of action to take, it’s important to ascertain which of the three issues it is – because this will determine the right response.
Let’s take the first one, ‘they don’t have the budget’. This could be a real ‘we don’t have the budget’, or a ‘our cash flow is preventing us at this very moment’, or an excuse because we don’t get the value you are bringing, so which is it? Only by exploring more with the potential client will you find out the real reason.
Many clients don’t understand actually what value you are bringing to their company with your specialist skills. This is either because you’ve not been clear enough on the ROI or the peace of mind they will get from your input. Or, they believe they could get the same service else where for a cheaper price. Which if they can, call their bluff & suggest that they go for that option. Do you want to educate your client that every time they want a cheaper price from you, all they need to do is ask? The last thing you want to do is commoditise your service and specialist knowledge.
Very occasionally, you will get a client who tries it on. Normally this type of client, when reminded about your expertise and the value you bring to the work, will back down. Sometimes, you come across what I call a ‘PITA’ (pain in the arse) client – the type which expects platinum service for a cut down bargain basement fee. If your instincts are telling you that this will become a PITA client, then walk away before you sign up… A good business contact of mine walked away from the potential of working with a very well known high profile UK business because they expected him to work for a 25% of his normal fee level – because of the kudos he would have got from working with them. I also walked away from a ‘PITA’ client. It was just the sort of work I would have loved to have done. However, they were asking me to drop my fee by 50% and change how I wanted to work. And I was going to do this because ‘they really wanted to work with me’ and ‘have a long term close relationship with me’ (don’t be fooled by that line, it’s a standard negotiators line and is meant to flatter you) If I had said yes, what this would have meant is me having a long term relationship with this client on a crap and unprofitable rate for the foreseeable future.
Once a rate is set, it’s very difficult to negotiate up at some point in the future. Have you ever managed this?
So what’s the solution? There is always the walk away option – which I did for one of my two potential clients. The other option is to renegotiate the total package price and what you will do for the client. With a bit of lateral thinking you can normally bring the total price down to nearer to where the client needs it to be, without lowering your hourly rate. So, you don’t cut your fees, and the client gets a lower price for the whole package. Win win. If you then deliver, most clents will potentially add stuff back in, and you get to generate more fees.
Remember that you will judged not just on the size of your client portfolio, but the profitability of your client portfolio. Dropping your fees may help you grow a client portfolio, but if the portfolio isn’t profitable, you may as well have not won the new clients in the first place…
How do you deal with these negotiation tactics which request you to lower your fees?