The Art of Business: Negotiating in a Soft Market
Negotiating a project fee has always been an artful dance -- part intuition, part hard numbers, a little magic, a little reality. Negotiating a fee is even more slippery in a soft market, when the supply of creative geniuses outstrips the supply of projects. You want the job, but you don't want to lose your shirt either.
Here are a few suggestions to help you sharpen your negotiating skills in times like these.
- Do the Numbers. Really Do the Numbers. In fat times it often works well to cost out a project in ballpark figures, bump up price by 20 to 50 percent, and then work backwards to break it all down so it seems like you've really done the math. "Creative math" works when there's little competition or when you have so many RFPs coming your way you don't care if one or two slips by.
In harder times, you will likely have many more competitors, and you can be sure they will be pricing their offers to the bone. RFPs won't be as plentiful, either, so every opportunity to land a project counts. It behooves you to put together numbers -- real numbers -- that truly reflect your costs. This way you can feel confident you are proposing the lowest possible fee while assuring yourself that you won't be taking a bath on the project.
Your numbers should also reflect the current market realities. Check with colleagues, trade associations, and industry publications for pricing studies to find out how much the market will bear.
- Work with the Client to Cut Project Costs, Not Your Costs. Everybody is trying to save money these days. And many clients believe the best way is to ask you to reduce your fees.
The best way to save money is to cut project costs. So when the client asks, "Can you do it for less?" you can gleefully answer, "Sure, let's sit down and I'll be happy to show you how we can reduce the cost of the project."
You know the drill: Use paper A instead of paper B and save $500. Use royalty-free photos and save another $1,000. Subcontract to Flash developer Y instead of Flash developer X and save 40 percent.
Costs can always be lowered, and you can shine as a creative consultant by showing your clients how. In fact, you'll actually enhance your prestige by sharing your intimate inside knowledge of the industry. Consider it a free added value that you're offering to the client.
- Respond More Quickly, More Personally. Negotiating isn't all a numbers game. It's also about personality and timeliness. If you've ever seen or experienced the bazaars of Morocco or Egypt you know well the power of personality in a negotiation.
So, in lean times, put your charming qualities to work for you. Start by creating or enhancing a personal relationship with potential and current clients. Without being patronizing, listen, -- really listen -- to their needs and desires. Understand their fears and objections, and make sure you address them, whether verbally or in writing.
In the back of your client's head, she or he is asking, "do I really want to work closely with this person?" Spend time and effort making sure the answer is yes.
Timeliness is another factor you can control. When asked for a proposal, respond speedily. Get your proposal in ASAP and sell it from the get-go. If you succeed in getting in first and, most importantly, satisfying all your client's needs and objections, all other proposals will be judged against yours. Your competition will be playing a game of king of the hill, with you already on top.
- Don't Sell Yourself Short. It's tempting to respond to proposals with prices so low that you're guaranteed the job. But is it worth it? It's certainly no good for your self-esteem, it may cause your clients to respect you less, and it makes it very difficult to increase your price when good times roll again. Once you work for peanuts, your client will expect the same low costs in the future.
Rather than work for below cost, spend your time cutting your overhead as much as possible, then pass the savings onto your clients. If necessary, reduce your profit margin to reflect the times, but do yourself a favor and never work for less than you're worth. This is particularly true if you promote yourself as a high-quality provider. Setting lower-than-normal prices may make clients suspicious of your claims of top-of-the-line results.
- Be Creative with Payments, Additional Services. For clients, sometimes money isn't the biggest financial issue; it's cash flow. If that's the case, consider offering delayed payment or some sort of installment plan (provided you're not in a severe cash flow crunch yourself).
Obviously, this can be a very risky strategy, and it's certainly not advisable if you have even the faintest doubt that your client will pay when the time comes.
Save this strategy for the very end of the negotiation, for times when all other objections have been satisfied but still the client still sighs and says, "I just don't think we can do it right now."
That's when you offer a creative payment plan. It might mean digging into your credit sources to keep cash flowing, but the upside is that you get a job that pays. Money later is almost as good as money today. Almost.
- Know When to Say No. There's nothing harder for a freelancer or small-business person to say than "no." But many clients will take advantage of a soft market to bludgeon vendors of all types, including creatives, asking them to slash costs and then slash them some more. Don't let it happen to you. Should you succumb, your client will lose respect for you and your professionalism, and you will be committing yourself to a job that may keep you from taking a higher-paying gig tomorrow.
There is one exception to be considered sparingly: If it comes down to cutting your fee or losing the job and you just can't afford to let this client go, make it terribly clear that you're willing to reduce your fee -- but this time and this time only.
Hopefully you won't find yourself faced with a counteroffer that's even lower, but should you find yourself in that position, don't forget one of the biggest benefits of being your own boss: You're always free to walk away.
Read more by Eric J. Adams.
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