Many firms believe that they go into client price negotiations well prepared. Maybe this is true in terms of the offering itself (a moot point perhaps) but as often as not, they go into those discussions ill-prepared in terms of their mindset.
In my last post 'I Don’t Give a Tinkers Cuss About Value – I Just Want the Lowest Price!', I dealt with the importance of qualifying the purchasing client and developing a deep understanding of their drivers; drivers that they articulate and are genuine about, those that they articulate but which are frankly, disingenuous and those that they don’t share with you at all (by accident or design).
Once you have a good understanding of what you are up against, it is time to get to work on preparing your strategy so that the negotiations are just that, a negotiation, and not an unconditional surrender.
Get that job at all costs...
When it comes to agreeing a price with a client, whether a small one-off matter or in the context of pitches, RFPs and periodic reviews of existing panel or other arrangements, many firms believe that they go into those discussions well prepared. Maybe this is true in terms of the offering itself but as often as not, they go into those discussions ill-prepared in terms of their mindset.
So what is the mindset that many lawyers take into a price negotiation? Essentially it is, ‘I/we must get this piece of work, come what may’. On the face of it, the decision to seek the work is sometimes underpinned by some analysis, particularly in well-resourced firms that have a depth of internal analytics and financial management capability.
In less well resourced firms the price may be a function of selecting discounted headline hourly rates, without any sort of analysis, which are presented in the hope that they are the lowest and that you will ‘win’ the work. (Be careful what you wish for; you may just get it).
Another agenda perhaps?
However, there are often other drivers to secure the work swirling just below the surface that have nothing to do with commercial reality or the firms strategic objectives. For example:
- Turnover is everything – we are a top (insert number as appropriate) firm and table relegation would be apocalyptic for us.
We need to keep people busy and we are a bit light on work at the moment. Just get the work in. A lousy fee is better than none at all.
I am a fee rock star in my firm. That gives me gravitas and ‘clout’. I am not concerned that my margins aren’t great as a result of me consuming a disproportionate share of the firm’s resources (in fact I have no idea how profitable I am or aren’t). My gross fee fees are all that matters.
These (I would suggest) slightly misguided imperatives result in lawyers going into price negotiations with the wrong mindset. The worst part of it is that most of your clients know these things and will use them against you, which is why most lawyers approach price negotiation from the perspective that the client will always ‘win’ and get their way; all we can do is mitigate the damage.
It is something of a cliché in the world of elite sports men and women that all that separates those at the top is their mindset – the mental game. So it is with a price negotiation. If your opponent effectively behaves as if they are indifferent as to whether you get the work or not, you have probably lost the negotiation before it has even started.
What mindset do we negotiate with?
So, what do we do? You have to believe and act as if you are equally indifferent as to whether you get the work or not. You need to have the courage to send a message to the client through word and deed that,
“This is a commercial transaction and we are each negotiating the best terms we can from our respective positions. It has to work for both of us, not just you. We will seek to accommodate your reasonable expectations but be under no illusions; there is a point at which we will walk away from this particular piece of work and if need be we will also walk away from you as a client if you aren’t prepared to pay a fair fee.”
I hear cries of; “fine in theory, won’t work in practice”, or “you don’t understand how tough and competitive things are at the moment”. Sorry, that is a cop-out. There are firms doing this and reaping the rewards (including the satisfaction of ‘sacking’ some of their clients who should have been shown the door a long time ago).
It does work, really!
Like me, most of you would have had that slightly surreal experience of having decided that you are fed up with a particular client, especially their behavior over pricing issues. The next time they want something, you resolve to give them an eye-watering price that is guaranteed to see them walk. In other words, you have moved into a mindset of indifference. Then they confound you by agreeing to your ‘Charge of the Light Brigade’ price.
“Okay, if I have to continue to put up with you, at least you are paying properly for the privilege.” And if they do walk? Well, that was the plan wasn’t it? Either way, job done. Amazing what a bit of indifference can achieve. Who would have thought?