Tuesday, August 11, 2009

Negotiate Value - Not Fees

How many times do you meet with a prospective client and they say your fees are too high? How many of your current clients are asking for a fee reduction because of the recession or they just do not have the budget for your services? Most of the time you respond, "What can you afford or what is your budget for this project?"

If this is the case, you just set yourself up for a downward fee negotiation! The problem with this type of conversation is you are relying on the buyer's presumed budget and not the buyer's overall budget in terms of value.

Buyers will justifiably seek to get the best deal. (Think how you approach buying a new car.) While they are eager to reduce fees, they are not so eager to reduce value. "Over servicing" is not uncommon in the PR industry. When you over service you provide greater value and do not get paid for the value that is provided! Try this conversation with a general contractor building your new home. You quickly learn the term "change order."

You may hear from the buyer that ABC, PR is willing to do the project at the lower price. Let them! Did you ever win a RFP and really lost? By this I mean the fee was so low you could not make money? Let another PR firm lose money and drain resources. I have only one exception to saying no: Intellectual Capital. The most important asset you have is your people and the intellectual capital they acquire. I may take a project at a lower fee or even lose money (I try and at least break even) if I am gaining intellectual capital for the firm.

So how do you respond to the lower fee request? "Of course fees can be negotiated. What value would you like to remove from the project?" Once you agree to a lower fee without a quid pro quo, you will be expected to do this every time. Walk away!

Next month: "Provide the Customer with a "Choice of Yeses"