Marginal gains on fees can make a major difference to the bottom line, and making those types of gains on fee negotiations should be an important aspect of any accounting professional’s strategy in today’s highly competitive marketplace.
But how often does a client ask you for a discount on fees, and how do you handle it when they do?
The Discount Request
Let’s imagine a typical situation: You have worked hard on a proposal that you are now presenting to a client. You patiently run through all the details. Dialogue is constructive, and your expectations for winning the business are high.
But when you finally present your fees, the client sighs a little and says, “I like your proposal but ... ”
- “ ... this is all I’ve got.”
- “ ... it is more than we had anticipated.”
- “ ... the fees seem disproportionate to the actual service provided.”
- “ ... I’m not sure we are willing to commit to such a significant financial investment – is it possible to reduce cost?”
In whatever language it is raised, the request for a discount is one of the most effective tactics available to a buyer (of services, or otherwise). There’s nothing to lose and potentially significant gains.
In this example, “I like your proposal” works because it gets you as the seller excited that you may actually win the business. Meanwhile, the other half of the sentence, “but this is all I’ve got” sends a clear, potentially critical question about fees.
How Do You Respond?
Now it’s true that the fee you have presented may actually be completely reasonable given the work involved and the industry standards. But buyers are under pressure to secure the best rates and the discount request often works.
In fact, clients are taught that a poorly trained seller will be so keen to win the business and shake hands that he or she may well immediately respond by offering a discount of some kind. In addition, their experience is that when they request a discount, the majority of their professional suppliers will start to cave-in, offering a reduction up front.
So if that’s how a bad seller responds, the question is: How does a good seller respond?
1. Defend Your Price
The first thing for you to remember when handling discount requests is that if the client is interested in negotiating, this is generally a good sign – clients generally negotiate when they are ready to buy. But you as the seller should resist the temptation to offer a discount immediately.
Your first response is to defend your price – re-explain the work involved and what the client will receive. Quite frequently, a price defense will be enough to satisfy the client with your price.
In the event that a price defense is not enough, and the client continues to request a discount, the next step is to offer the client a reduced fee, for a different package.
2. Offer a Different Package
This step involves accepting the client’s discount request – in return for a different or re-scoped package that does not meet all of their original requirements.
“OK, Mr. Client, I understand that this is a significant commitment. However, we might be able to reduce costs by re-scoping the proposal.”
The aim is to lower the client’s aspiration levels by offering some undesirable variables:
- “We can lower the fee but will need to change the delivery team” (less experienced, more junior people).
- “We will offer you a 5 percent discount if you agree to pay us upfront” (undesirable payment terms).
- “We can lower the fee if we take out X and Y” (take out some of the client’s original requirements).
If they have a genuine budget restriction, the client may be interested, and you can negotiate from there. If they are not, you have effectively called their bluff and might be able to steer them back to the original proposal.
3. Negotiate Toward a “Win-Win” Outcome
In the event that defending your fees and offering an alternative is not enough, and the client obviously has a genuine budget restriction, the final step involves trading concessions slowly and in small increments.
You will need to think about potential “bargaining chips” prior to the negotiation:
- If we hold our fees, what can we offer to make the proposal more attractive?
- If we concede on fees, what can we ask the client for in return?
Now is the time to use them. Focus on what is low cost to you and high value to them (seminars, events, etc.) and on what is low cost to them and high value to you (utilizing additional services/products, providing introductions, case studies/testimonials).
There is always a better deal, if both parties are willing to look for it. To quote Professor Thomas Lys at Kellogg School of Management: “You shouldn’t think of a negotiation as a zero-sum game. You should think about it like solving a problem – there may be more than one solution.”
Tom Fielder is marketing manager at LDL, Leadership Development Ltd. LDL provides negotiation training for accounting professionals, as well as leadership, sales and communication training to firms across the professional...