“What should we do when our clients ask for discounts on our fees? We believe our fees are reasonable, and our clients agreed to them at the beginning of our engagement.
But we also value our future relationship and don’t want our clients to feel unappreciated or that they didn’t get a sufficient “bang for their bucks.”
Fee negotiations between professional service providers such as lawyers, consultants and accountants and their clients often present challenging negotiations.
So what should you do if you are in professional services or contract for their services?
Apply my Five Golden Rules of Negotiation.
• Golden Rule One: Information is Power — So Get It!
First, get sufficient information about your counterpart’s fee policies to set your fee goals. Some providers regularly offer discounts for their best clients or for volume and others don’t.
And keep front and center the value of the future relationship relative to the financial amounts involved.
Second, bills should include sufficient detail so clients understand the effort involved. Don’t just send a bill with “Services Rendered” and an amount. Describe the services rendered so your clients can connect the value and items received with the money owed.
• Golden Rule Two: Maximize Your Leverage
Avoid putting most of your proverbial eggs in one basket. The greater the ability to walk away from a client — or for a client to walk away from the service provider — the stronger their respective leverage.
If Client ABC represents 50 percent of my consulting business and I don’t have another big potential client waiting in the wings, it will be tough to turn down ABC’s demand for a big discount.
Leverage-wise, service providers should thus diversify their client base. And clients should consolidate most of their services with one provider and occasionally throw another some business so they have a good alternative waiting in the wings.
• Golden Rule Three: Employ “Fair” Objective Criteria
About a year ago, I received a bill from a lawyer I had hired to set up my negotiation planning and management software company. The bill gave me slight sticker shock. So I asked my lawyer about it.
He told me that the amount actually was less than what I would have paid other firms for the same effort. He was right, and it made me feel more comfortable paying the bill.
What was his move? He pointed to an independent and credible standard — market value for the same services — in helping me evaluate what was fair.
This is a critical move, especially if you want a future relationship. So emphasize independent objective standards that justify your “fair and reasonable” conclusions about the fees or your preferred discount.
Other standards to use in this or related negotiations include:
1. Policy and/or tradition (While other firms might operate differently — it’s always been our tradition and policy to set a fair price and not discount it.)
2. Expert judgment (Feel free to ask your accountant, an independent and credible expert, to confirm the reasonableness of our legal fees for this effort.)
3. Costs (Please remit payment promptly as it costs time and money to collect unpaid fees — and it’s not fair for us to incur that cost.)
4. Precedent (These are the hours we worked at the rates you agreed to pay and you have paid these rates to us in the past.)
• Golden Rule Four: Design an Offer-Concession Strategy
My latest legal bill included several entries with the notation “N/C” in the column for amount charged. What is “N/C”? No charge. What was my lawyer doing? Sending an important message by, in effect, offering me a discount without being asked.
Lesson? In considering whether or when or how much to offer or concede in a fee negotiation, occasionally providers should make a first offer. This will send the important psychological message to your clients that you value them greatly and understand their fee sensitivity.
And while you may not want to do this too often, it also will lessen the likelihood that your clients will ask for a further discount.
Of course, if you are the consultant and get asked for a discount, consider providing a relatively small one without much resistance. It will make your clients feel very appreciated — a value often in excess of the amount discounted.
• Golden Rule Five: Control the Agenda
How should you present fee increases to your clients? Consider especially the way — or agenda — in which to do this. I generally inform my clients in a telephone call or a meeting and follow up with written notice.
Why? I want the ability to explain the reason it’s fair and interact if I get any pushback.
Frankly, how you engage in fee negotiations substantially impacts how much you can charge and collect. Bottom line — that puts money in your pocket.
Published December 1, 2006 The Business Journal