By Tim Williams
If discussions about agency compensation seem like a circular conversation, it’s because most firms are debating the wrong thing. Clients will always try to steer the discourse to focus on cost. Your job is to present and defend the value you’re creating for your client’s business.
Negotiation techniques are important, but it’s more important still to make sure you’re having the right discussion in the first place. It’s not just about how to negotiate, but what to negotiate.
Here are 12 essential guidelines to help insure you’re having the right conversation.
1. Make it clear that you're selling outputs and outcomes, not inputs. Don't let the buyer direct the conversation toward talking about your costs. Be deliberate about continually bringing the topic back to discussing expectations, objectives, desired results, and solutions.
2. Use the language of utility and value in place of the language of cost. The psychology of pricing begins with using language that signals your value instead of focusing on your costs. Terms like hours, time, and estimates have no place in a discussion about pricing knowledge work.
3. Negotiate price when you have the most leverage. Professional firms consistently make the mistake of beginning a new assignment before quoting a price to the client. The time to price an assignment is before you begin the work, when the firm has the most leverage.
4. Signal early in the process that you’re willing to walk away. You’ll never have any leverage in a negotiation if the client believes that you’ll do anything to get the business. It’s counterintuitive, but wanting them less makes them want you more. You are not a supplicant to your client.
5. Insist on transparency of expectations in place of transparency of costs. Show how it’s in the client’s best interest to discuss expected outcomes and outputs instead of expected costs. Costs are the seller’s concern, not the buyer’s.
6. Match their process with your process. Early on, communicate that in addition to the client-side procurement process, your firm also has a process: Scope of Value before Scope of Work.
7. Approach every compensation dialog with the question "How can we align our economic incentives?" Make it clear you don’t view compensation as a zero-sum game. Instead of fighting with procurement for a bigger slice of the pie, identify and discuss ways to grow the pie.
8. Separate ideation from implementation. Because ideation has more perceived value than implementation, price them separately. While it's essential to use solution-based pricing for Ideation work ("Magic"), implementation work can be unit priced.
9. Offer uncommon services at uncommon prices. By offering services or expertise not found at other firms, you can command premium pricing. Make your margins on high-value strategy, conceptualization and problem solving -- things that clients can’t do as well in-house.
10. Put the value of your price in perspective with options. The one practice you should always follow is offering options. It puts the value of your offering in context and has the powerful effect of directing the dialogue around outputs and outcomes instead of inputs (hours and efforts).
11. Use the principle of anchoring to get a better price. The first figure named in a negotiation silently shifts the other side’s expectations of what it will have to pay or accept. In a very real sense, the more you ask for, the more you get.
12. Never lower price without also stripping out value; it destroys your pricing integrity. Remember that while buyers may want to lower the price, they don't want to lower the value. Your job is to negotiate the value -- not just the price, and certainly not the costs.
The effort you invest in changing the compensation dialogue will pay both immediate and long-term returns. Remember, the most powerful way for your firm to improve its profits is not to lower its costs, but rather to improve its pricing.