Business negotiatons....

[jerkbox]

If you have a service industry business, where you generally provide services on a contract basis, is it pretty much expected that your clients will try to low ball you on the price and negotiate a cheaper quote?

I find this to be a very frustrating part of my job.....I put together quotes of what I think it's going to take to get the work done, and am constantly being low balled....

Often I get personally offended, because I know what my time is worth, and what current market rates are.....and being as I am just starting out on my own, I quote low. Yet, I still get low balled....it's a constant battle.

I'm just trying to understand the workings of the business world in this sense, and develop some negotiating tactics.

 

[jh1]

and the point of this post was..............

 

[jerkbox]

and the point of this post was..............

it's probably a bit over your head little guy....sit down and let the grown ups talk.

 

[Smurfy]

of course it's common to be low-balled if you are negotiating. that's what negotiating is all about.

 

[powerslave]

I think you kind of answered your own question. You said that you're just starting out. So, there will be a period while you build your "reputation". Then after establishing yourself thing should work out.

 

[MattTheSkywalker]

we do this as a business, we make hundreds of millions per yer for our clients, we are one of the largest professional services firms in the insurance industry. We're the best in the industry at this sort of thing....any industry.

If you are fighting over price and playing the low-ball game then there is ineffective communication.

Any price you offer someone has to be based on the services. The buyer has to understand the value that the seller offers. If the buyer is hung up on the number, then they are not getting that.

As a seller you have to literally grab the buyer's hand and walk them through your pricing model, explaining in detailed fashion how you arrived at that number, and why it is the right number.

Ineffective or stupid sellers of services get to that number and then try to build in extra revenue above it; buyers smell bullshit and are put off. Sophistcated buyers will walk.

Your mistake is where you said "how much I think it will take to get the work done" - you need to know exactly how much it is going to take and buyers must understand exactly where your number comes from.


Make sense so far?

 

[Becoming]

of course it's common to be low-balled if you are negotiating. that's what negotiating is all about.

I do lots of such negotiations in my work... it is pretty easy now, but yeah you get some peeps that think they are johnny negotiator sometimes and think lowballing is what it is about...

To sum it up, in order to get things moving and have a constructive negotiation you have to, 1) Eliminate facades and get to the real stuff, 2) Eliminate "positional" postures

And a lot of times it comes down to knowing what your value is and being ready to walk away... You cannot concede your way to a true partnership, if you let them walk all over you now, they certainly won't think twice about it later...

If you are right, you have the best solution, and you know the marketplace they will come back.

Commoditizing your service/solution is the best way I know to lower your percieved value and lose business in the long run...

 

[jerkbox]

we do this as a business, we make hundreds of millions per yer for our clients, we are one of the largest professional services firms in the insurance industry. We're the best in the industry at this sort of thing....any industry.

If you are fighting over price and playing the low-ball game then there is ineffective communication.

Any price you offer someone has to be based on the services. The buyer has to understand the value that the seller offers. If the buyer is hung up on the number, then they are not getting that.

As a seller you have to literally grab the buyer's hand and walk them through your pricing model, explaining in detailed fashion how you arrived at that number, and why it is the right number.

Ineffective or stupid sellers of services get to that number and then try to build in extra revenue above it; buyers smell bullshit and are put off. Sophistcated buyers will walk.

Make sense so far?

I'm with you.....it's a challenge with some clients, especially in my industry. Often hard to make them see the value in the service I am providing, and why it costs what it does. They know they want something great, yet they don't understand why making something "look nice" should cost so much.

And then, it seems there are folks who just want a better price no matter what....I don't know if it's an ego thing or what.

what do you do in that case? Do you compromise? Do you lower your rate, even if it may be unprofitable, with the hopes that it will lead to other bigger and better things? Do you walk away from the deal? Do you fluff numbers to begin with?

I'm sure you run into these obstacles now matter how tight your presentation is....

I'm just starting out....I have tons to learn.

 

[Becoming]

If you are fighting over price and playing the low-ball game then there is ineffective communication.

Any price you offer someone has to be based on the services. The buyer has to understand the value that the seller offers. If the buyer is hung up on the number, then they are not getting that.

As a seller you have to literally grab the buyer's hand and walk them through your pricing model, explaining in detailed fashion how you arrived at that number, and why it is the right number.

awesome job spelling it out

 

[Becoming]

And then, it seems there are folks who just want a better price no matter what....I don't know if it's an ego thing or what.

what do you do in that case? Do you compromise? Do you lower your rate, even if it may be unprofitable, with the hopes that it will lead to other bigger and better things? Do you walk away from the deal? Do you fluff numbers to begin with?

Find out what their objections/concerns/perceptions are so that you can address them - just ask "why?"

then see my previous post for people with unreasonable expectations

The longer I do these type of things the less and less I run into these problems....

 

[avenirup]

it's probably a bit over your head little guy....sit down and let the grown ups talk.

LOL.....the bottom line is you go high, they go low and both of you guys agree somewhere in the middle. I deal with this all the time. It is just apart of business.

 

[Becoming]

LOL.....the bottom line is you go high, they go low and both of you guys agree somewhere in the middle. I deal with this all the time. It is just apart of business.

as matt it explained it does not have to be... if you are dealing with certain cultures this is even more difficult to deal with, and some of them lowball you and DON'T compromise (that is how they percieve negotiating to be done).....

if you can get rid of that attitude you can make a much more productive relationship...

 

[MattTheSkywalker]

I'm with you.....it's a challenge with some clients, especially in my industry. Often hard to make them see the value in the service I am providing, and why it costs what it does. They know they want something great, yet they don't understand why making something "look nice" should cost so much.

And then, it seems there are folks who just want a better price no matter what....I don't know if it's an ego thing or what.

what do you do in that case? Do you compromise? Do you lower your rate, even if it may be unprofitable, with the hopes that it will lead to other bigger and better things? Do you walk away from the deal? Do you fluff numbers to begin with?

I'm sure you run into these obstacles now matter how tight your presentation is....

I'm just starting out....I have tons to learn.

Well, we have the advantage of our transactions being hundreds of millions per year, and big numbers attract the best people across the table - investment bankers, large corp CEOs, in other words a very sophisticated crowd.

We never fluff numbers. Nothing you can do will cause you to lose the attention of serious people faster.

When we run into that situation, there are a few ways to handle it.

1. Literally walk them through why it costs what it does. This is best done when you show a buyer what it would cost to do this function in-house, talk about their workflows etc. Understanding their angle will make them more comfortable with you.

2. Change the pricing structure. More up front, less up front etc. This of course changes your risk perception, but will also change the buyer's risk perception.

Provide guarantees. Many buyers of services want a guarantee. If you can guarantee a result with minimal risk to yourself, build it into the contract. Be careful though, you've just bought a lot of risk. We actually use insurance policies for this.

Another pricing structure you can do for the guarantee is allow any initial payments to go to an escrow account, and any shortcomings later on can be charged against that account. This is a nice risk mitigation technique.

You would consider the options laid out in (2) above because to sell anything to a corporate buyer, you have to demonstrate an understanding of their risks, which requires a deep understanding of their business down to the workflows sometimes at the DESK level, and show them that you have built a solution that not only is a solution but also mitigates their risk.

3. if the people across the table are ego-driven, walk. This usually gets them right back to the table.

 

[jerkbox]

LOL.....the bottom line is you go high, they go low and both of you guys agree somewhere in the middle. I deal with this all the time. It is just apart of business.

i don't like that.....I don't like being a bullshitter....I'm no good at it. I prefer to be very straightforward....and like Matt said, have a pricing model that makes sense....


i'm coming to the realization things don't work like that however....

 

[Apöllo]

As a graphic designer, I'm probably in the same boat as you. My best defense is a strong offense. My shit is good (or so I'm told). I usually show different levels of quality with different price points. However most of my work comes from other design studios so I really don't have to worry about clients.

Boils down to what Matt said earlier about holding the client's hand and detailing the work that is possible for differnet prices.

Another thing is that with the advent of desktop graphic design everyone can create shit. So it's typical for someone to balk at $100 an hour and this is where you have to show that quality work you've done in the past.

 

[Becoming]

....

Matt brought up a lot of good points about things you can consider using as tools in the negotiation process... but don't offer them willy nilly...

Asking what their concerns etc are is critical or you will be less effective and potentially offering out things which you may not have to...

If someone is worrying about the guarantee issues they might not reject a pricing structure change (they may see as a way to stop payments if something goes wrong) but you might be able to get all your money up front and negotiate a potentially less risky guarantee if you had asked what the concerns etc were...

Find out what their concerns are FIRST, then use suggestions like Matt's to bridge the gap

 

[jerkbox]

As a graphic designer, I'm probably in the same boat as you. My best defense is a strong offense. My shit is good (or so I'm told). I usually show different levels of quality with different price points. However most of my work comes from other design studios so I really don't have to worry about clients.

Boils down to what Matt said earlier about holding the client's hand and detailing the work that is possible for differnet prices.

Another thing is that with the advent of desktop graphic design everyone can create shit. So it's typical for someone to balk at $100 an hour and this is where you have to show that quality work you've done in the past.

LOL...that's what we do......(web & digital media)

it's so subjective....and extremely difficult to put numbers to results.

 

[jerkbox]

3. if the people across the table are ego-driven, walk. This usually gets them right back to the table.

i am pretty sure this is what I am dealing with here in this case....

bottom line is, he's trying to cut 1/4 of the cost, simply because we are a young partnership. Despite the fact that we have over 20yrs experience between the 3 of us.

There doesn't seem to be any real rhyme or reason for it, he like what he has seen so far from us. He seems confident that we can do the job. And he came to us.

Not to mention the cost we proposed is already AT LEAST 30-40% lower than typical market cost.

It's difficult to negotiate without being able to show metrics to justify cost...

 

[MattTheSkywalker]

i am pretty sure this is what I am dealing with here in this case....

bottom line is, he's trying to cut 1/4 of the cost, simply because we are a young partnership. Despite the fact that we have over 20yrs experience between the 3 of us.

There doesn't seem to be any real rhyme or reason for it, he like what he has seen so far from us. He seems confident that we can do the job. And he came to us.

Not to mention the cost we proposed is already AT LEAST 30-40% lower than typical market cost.

It's difficult to negotiate without being able to show metrics to justify cost...

base it on what they expect to get out of your services, what they have gotten out of your services in the past, and show pricing consistency. If this is a problem, walk.

 

[strongsmartsexy]

I have yet to win a contract I've bid on. Which I'm exceedingly happy for. Even after laying out my pricing model and schedules someone still comes in on a low bid.

Luckily for me they take the low bid.

How is that lucky? Well, because I end up coming in later on to FIX the crap the low bidders did. I generally make up to 2 - 4 times the amount of money I would have made on the contract to begin with. I smile all the way to the bank every time someone starts talking low numbers instead of QOS and dealing with pricing models.

 

[Becoming]

Not to mention the cost we proposed is already AT LEAST 30-40% lower than typical market cost. ....

I would say this might be part of the problem - why so low already - because you are new? that is quite a big discount- itself alone this positions you BELOW your competitors in a potential clients eyes

bottom line is, he's trying to cut 1/4 of the cost, simply because we are a young partnership. Despite the fact that we have over 20yrs experience between the 3 of us....

Maybe some of it is because you are already 30-40% below market- he figures you can take off some more as well

i would look for things you can address INSTEAD of total cost to him but be ready to walk (can you afford to? - if you can't maybe he knows it) sometimes that is all it takes to earn the respect of some of those types

 

[sh4dowf4lcon]

If you have a service industry business, where you generally provide services on a contract basis, is it pretty much expected that your clients will try to low ball you on the price and negotiate a cheaper quote?

I find this to be a very frustrating part of my job.....I put together quotes of what I think it's going to take to get the work done, and am constantly being low balled....

Often I get personally offended, because I know what my time is worth, and what current market rates are.....and being as I am just starting out on my own, I quote low. Yet, I still get low balled....it's a constant battle.

I'm just trying to understand the workings of the business world in this sense, and develop some negotiating tactics.

Much of the time, those types of contracts are politically awarded. that really sucks, when you are wasting your time and you think you are trying hard to earn business. I feel your frustration, keep working hard. you cant find "sunshine" sitting in the shade.

 

[jerkbox]

I would say this might be part of the problem - why so low already - because you are new? that is quite a big discount- itself alone this positions you BELOW your competitors in a potential clients eyes


Maybe some of it is because you are already 30-40% below market- he figures you can take off some more as well

i would look for things you can address INSTEAD of total cost to him but be ready to walk (can you afford to? - if you can't maybe he knows it) sometimes that is all it takes to earn the respect of some of those types

yeah, it's because we are just starting out....we want to get business. this is kind of a side venture for us, that we can hopefully grow into a full time gig.

we can't offer the level of service an established agency can in terms of turnaround and availability. but we can do the job. so, we go after certain types of clients right now. and this would be a perfect opportunity.

but, we will walk if need be.

if he walks...he'll find that he is going to pay a lot more, and get a lot less.

 

[jerkbox]

I have yet to win a contract I've bid on. Which I'm exceedingly happy for. Even after laying out my pricing model and schedules someone still comes in on a low bid.

Luckily for me they take the low bid.

How is that lucky? Well, because I end up coming in later on to FIX the crap the low bidders did. I generally make up to 2 - 4 times the amount of money I would have made on the contract to begin with. I smile all the way to the bank every time someone starts talking low numbers instead of QOS and dealing with pricing models.

lol...that works!

 

[jh1]

 

[Becoming]

Matt- My employer sends of to a lot of seminars and training on this type of thing, of course there is on the job learning as well... do you do the same, or do you also have books you can recommend?(learning more/new things is always possible)

Lots of people like that mackey "swim with the sharks" one from what I have heard....

yeah, it's because we are just starting out....we want to get business. this is kind of a side venture for us, that we can hopefully grow into a full time gig.

That is a tough spot to be in... when I first started I found out I got a lot more business (and respect) once I learned to stick to my guns and at the same time approach it more like described in Matt's and my posts (though I think he has a somewhat different business by nature of the value of the contracts he works with)....

I understand you have to price it fairly for what you can offer though - it is not reasonable to charge the same and offer less.. make sure that they how this value benefits them

if he walks...he'll find that he is going to pay a lot more, and get a lot less.

I hear you - it is tough and sometimes potential clients are idiots no matter how many times you spell it out for them...

 

[MattTheSkywalker]

Matt- My employer sends of to a lot of seminars and training on this type of thing, of course there is on the job learning as well... do you do the same, or do you also have books you can recommend?(learning more/new things is always possible)

Honestly, I have a job where I work with CEOs of large companies, wall street people, and fund managers from the best of the private equity firms every single day.

I am just surrounded by the very best in the business. Never been to a seminar. I wish I could help you here.

Understanding the customer's perception of risk is the heart of any deal.

 

[Becoming]

.....

Damn- lucky dude - guess I just had to learn those same things the hard way... LOL

I don't work with the others, but we do work with CEOs/GMs of companies on a regular basis (though they being in a client role)

Nothing truer than the quote about understanding the customer's perception of risk..

 

[Razorguns]

All i can say is: always go into the mindset of who you're selling to.

Look at it this way: What's the market rate for what your'e doing. *IF* there are others out their cheaper, WHY should they go for you?

Can they get it done with the cheaper methods? If so, then they'll go there.

Can they get almost similar quality (take out your own biases) (remember i said think in THEIR minds)? If so, then they'll go there (the cheaper bidders).

*IF* like Matt says -- 1) You're competitive and 2) Your quality and pricing structure match then you should have no problem.

If all the burger joints are selling burgers at $1.50. And min is 0.99c. I got nothing to worry about. Mine is CHEAPER. Point blank.

If all the burger joints at 99c and mine is $1.50 but i can SHOW mine is way superior to them AND SUPER QUALITY OF A BURGER *IS* IMPORTANT TO THESE GUYS then I got nothing to worry about.

Now if all they care about is just throwing some food at their customers (say a festival) -- then they obviously don't care about the quality. So $1.50 for them is useless.

It's all about realizing what they want. If there's a match, prove it to them. If there isn't (obviously you can't decrease your quality or lower your price to .99c) -- then you just gotta walk. Let them go to the cheaper places.

Your time is also money. If it ain't working. Go concentrate on other clients.

No one is gonna give you money for free. Realize this. You gotta SHOW THEM it's in THEIR FINANCIAL INTERESTS to pay this money. Try to avoid the "their quality sucks, ours is better" angle. Because you know they probably hear that from all the other vendors too. So it turns into a silly "he said, she said" scenario.

 

[jerkbox]

lol...

funny thing is, we are already significantly cheaper than any agency will be....

he seems to think that we should be even cheaper, given that we are just starting up.....

frankly, I think he just has that much of an ego, that he finds it necessary to try to assert control.

 

[Razorguns]

One of the most successful salespeople/businessmen i have ever met personally trained me on a lot of things. It's actulaly pretty simple.

His philosophy:

[By the time they get to you -- they've probably heard the same madison-avenue, college-trained, default, vanilla sales pitch blah blah a million times already. So take what you learned, and see used by every other salesperson and THROW it out the window].

Meaning:

[LISTEN to your client. Act almost like YOU are part of THEIR group. Act almost like you're a consultant hired by them to put together a SOLUTION that fits THEIR needs, NOT yours].

Example:

*ring*

[them]: Hi, we're interested in blah blah.

[typical sales guy] : "I'm so glad you called Steve! Why we have BLAH BLAH BLAH BLAH (10 min default scripted sales pitch)".

[you]: "Yep. We can do all that. That's what we do actually. What would you like in particular?".

[them]: "Well, what we'd like is..."

[okay]: "Okay. When would you like it done? What's your main criteria you're looking for out of this? What's important to you most?"

[them]: "Well cost really, but blah blah blah blah".

*THEN* base your answer, your hidden, implicit sales pitch based upon their answers.

By now, the customer has already opened themselves up to you. Let you into their inner space. Feels comfortable. It's more of a friendly, casual conversation. Plus you've garnered so much info from them, that you know EXACTLY what they want -- and NOW you can give them an answer that fits exactly waht they want.

Heck. I've seen this guy go off on 10 minute conversations about the lakers during sales pitches! I ask him why and he goes "Well, EASIEST way to sell something to someone, is if they're already your friend. When you do HARD SELLS, people put their GUARD up. Even if they don't buy now. At least they're your friends and they may buy from you later".

NEVER EVER underestimate the power of communication and just being damn human sometimes.

 

[strongsmartsexy]

lol...

funny thing is, we are already significantly cheaper than any agency will be....

he seems to think that we should be even cheaper, given that we are just starting up.....

frankly, I think he just has that much of an ego, that he finds it necessary to try to assert control.

When I get people like that I start asking them "since you seem very concerned about costs..." then lead them down the path to reduced services/goods/deliverables in order to reduce the cost.

 

[Apöllo]

When I get people like that I start asking them "since you seem very concerned about costs..." then lead them down the path to reduced services/goods/deliverables in order to reduce the cost.

True. If they want to low ball you then just break out the Mircosoft Publisher or Front Page and and get some clip art ready.

"You want a Business card? Well lets see what kind of templates Publisher has here! What, you want an Online store? Okay, I heard some great things about Yahoo Shopping!"

 

[MattTheSkywalker]

True. If they want to low ball you then just break out the Mircosoft Publisher or Front Page and and get some clip art ready.

"You want a Business card? Well lets see what kind of templates Publisher has here! What, you want an Online store? Okay, I heard some great things about Yahoo Shopping!"

unrelated but Yahoo! shopping is an awesome value.

 

[Razorguns]

>funny thing is, we are already significantly cheaper than any agency will be....

Then tell him that and leave it at that. If price is obviously their main concern, then OBVIOUSLY he'll have to come to you. Why waste any more breath you know what i'm saying. You win by default if price is their only concern.