(This post in another in our series of Rainmaking Problems. We invite your comments on this problem and would also welcome any problems you would like to s to get comments form other readers.)

I recently met with a client adjusting from the heady days of a boom economy to the current bust. Several of its professionals argued that they hadn’t been in a sellers’ market. Competition for large projects was always tough, they said, and though they had won a lot, they had lost some, too. True enough, but their firm’s major competitors had grown at rates over 20 percent per year and the firm, itself, faster than that, while maintaining or increasing prices. Sounds like a sellers’ market to me.

There is good reason to clarify this point, because recognizing when one is tipping from a sellers’ to a buyers’ market or vice verssus has important implications for many professional firms. That’s because the price of many professional services is quite elastic with demand. Boom turns to bust quite suddenly (see my post, Selling Professional Services in a Downturn, for an explanation of why), and you have to drop prices quickly, if you want to keep winning work. The market teaches this quite effectively, when too many firms compete for too few projects or assignments and clients play them off against each other to get the best deal.

When the tide turns to boom again, clients aren’t nearly so quick to help you see that you can raise your rates. This means that prices tend to go up more slowly in good times than they go down in bad. The firm which recognizes when it can charge its clients more generates much higher profits than its competitors.

My question is, how will we know when this downturn is over and we can begin to push up rates?

Clients often ask professionals to help them make or save money.  Accountants may help them reduce their taxes.  An engineer may help them reduce the cost of their products or add something to a product that allows them to charge more for it.  A consultant may help them enter a new market or reduce the costs of their supply chain.  Architects design spaces that attract more customers or allow their clients to use space more efficiently.  Lawyers may help a client gain regulatory approval for an acquisition, allowing it to make money.  Or they may help them avoid a stiff fine.

When a client tells you that there is money at stake, first determine how much is at stake.

How much money are we talking about here?

What would that be worth?

At a minimum, how much is at stake? And at a maximum?

That’s a lot of money. Are there any additional costs we haven’t considered? For example, would the news that you have been fined cause some customers to bolt?  If so, what kind of a hit might you take and where would that money have to come from?

Then ask them a question that will let them mentally spend the sum identified.

What would you do with that extra $10,000,000, if you had it?

What difference would it make if you had an additional $20,000,000 drop to the bottom line?

Could you use that money to reduce your debt?

The mental spending will help the client appreciate the value of your services.  That will make her more willing to accept your fee and make her less likely to buy on price.

A previous posting showed how a professional who questions his own value can determine what value his clients get from his services.

To get her price, however, a professional must not just know what her help is worth, she must feel it and act like it. Of course it feels uppish the first time you quote a $500,000 or $1,000,000 fee (or whatever is a large number for your firm). This is especially so if you are used to quoting much smaller numbers (see Why Peter Couldn’t Bag an Elephant for more on that subject). But you had better not let your doubts show.

Here are some things you can do to make it easier:

First, practice saying these words, I can help you. Practice them in front of someone you trust, and, if possible, have her videotape you, so you can see what you look like. Say them with calm self-assurance. You are simply stating a fact. You aren’t arguing with anyone or trying to convince anyone; you are just stating a fact. Have your friend tell you whether or not you sound believable and self-assured. Practice it again and again until you can turn it on at will as you do a faucet. You probably won’t say these words when you get in front of a client, but you will think them and the tone will carry over into what you do say.

Now, say them again, adding these words at the end, This work will run you between $750,000 and $1,000,000. And again, and say, Well, those are our rates. And again, this time adding, Well, how much of a deduction are you looking for? We might be able to shave a little off, but if we are too far apart I don’t want to waste more of your time. Remember your tone. You aren’t arguing. You are calmly stating facts.

Practice this until you have it down, and then try it on a client.

For more advice like this, please see Ford Hardings’ new book: Rain Making, Attract New Clients No Matter What Your Field, 2nd Edition

“Rain Making, in its new edition demonstrates its position as the single most sensible, accessible guide to building a professional practice…”
David Maister, author of Strategy and the Fat Smoker and co-author of The Trusted Advisor (with Charles Green and Robert Galford)

Laura has met with more than her share of prospective clients, but been much less successful at getting them to hire her. There are several reasons for this, but the one that most urgently needs fixing is her discomfort in quoting a fee, which, of course, the clients pick up on. Her discomfort results from her doubts about being worth the rates her firm charges.

Laura is one of many professionals who have this problem. If a low-end competitor sometimes takes work away, justifying your fees to yourself gets even harder. And if you have no confidence in the value of what you do, it is hard to see why your client should. If you have this problem, it hurts you in two ways: it results in lost sales and reduces the size of your fee, when you win. This is the first of two postings on the subject

Because the problem is as much based in emotion as in logic, logic alone is insufficient to deal with it. But logic is a good place to start. We will come back to emotion in the second posting.

Step One is to keep your focus on the part of the economy you operate in. That others who do more worthy things than you earn much less than you do may at some higher level be unfair, but it is no reason to accept below-market rates for the work you do. After all, the more you earn, the more you can give to worthy causes.

Second, see if you can determine the value clients receive from your work, keeping in mind that there is no necessary correlation between the difficulty or originality of your work and the value received. Earlier in my career a colleague charged a client for a day’s billing at a rate that would probably be equivalent to $7,500 today, for which he reduced the costs of a client’s new facility by what would be more than $3,000,000 today. The client was exceedingly grateful, but so was the next one we provided the same service to, but at a much higher rate.

Anecdotal evidence that my partner and I collected from our clients ten years ago suggested we were under pricing our work. A few trusted friends with whom we shared our logic agreed, and we put through a twenty percent price increase at the bottom of a recession. A few prospective clients lost interest in working with us, but we still sold out every hour we had available.

And it is not, after all, our perception of the value of our services that ultimately determines the upper limit to what we can charge. It is our clients’ view. As an important step to determining what we should charge and getting our clients to accept it, we need to learn the value the clients expect to get from our work. Use questions to draw out estimates of savings or gains a prospective client expects to realize from your services. Often, this requires a series of questions to create a clear picture for both the client and you.

Questions to ask when value-pricing your services:

• What is this problem costing you this year?
• How much more is that likely to be next year?
• Do these costs include the opportunity cost of the time that your department spends on this issue?
• What would you be spending your time on, if you didn’t have to deal with the issues anymore?
• What would that be worth to the company?

Once you understand the value of a solution, use additional questions to determine why the client needs you to obtain it:

• You must have tried to fix this before. What happened when you did?
• You have a capable team, so why bring in outside help for this issue?

When you are done with the questioning, both the client and you should understand why you are worth so much. That will make it easier to ask for his money.

For more advice like this, please see Ford Hardings’ new book: Rain Making, Attract New Clients No Matter What Your Field, 2nd Edition

“Rain Making, in its new edition demonstrates its position as the single most sensible, accessible guide to building a professional practice…”
David Maister, author of Strategy and the Fat Smoker and co-author of The Trusted Advisor (with Charles Green and Robert Galford)

Responding to our May 30, 2007 posting, Lessons from Maurie: Fee Negotiation, Glenn Mickle, an accountant and consultant based in Australia, has sent some helpful suggestions for negotiating fees. Here they are. Thank you, Glenn:

I have recently started with a regional accountancy/business advisory firm in NewSouth Wales, Australia as their marketing manager after a previously successful career in wedding and portrait photography. I see many parallels. Very busy staff coupled with downward pressure on fees from a competitive market.

In my previous career the first question was often “How much does it cost to have a family portrait taken?” My response “Far and away the cheapest way to do it is to take it yourself.” Then I would be quiet. The next question was usually “Well actually we’d like you to take it because we’ve seen what you can do.” This is OK once you have established a reputation for good work. Much like Maurie’s “Let me help you find someone cheaper” story, there is always someone cheaper. I would also sometimes hear ‘The guy down the road does free sittings.” My response: “Well he’d have a better idea than I would as to what his skills are worth.”

The question of ‘How much?’ is often a way for the client to appear in charge of the situation and for them to appear knowledgeable on the subject. If we find other ways for them to show their knowledge (for example, asking them what their preferences or priorities are and what they’d like to get out of this transaction) they forget about the price and start to focus on the value they are after.

I’m reminded of another hint given to me some years ago which I think fits nicely into your discussion. Here’s what to do when asked one those prickly questions like “Why does it cost $XXX?” Instead of getting on our soapbox and rattling off the many virtues of our products, skills and services blah, blah, blah, our response should be along the lines of “Why do you ask?” Then we find the real reason for the question, which might be “Well last year it was more expensive and I wondered why it was so cheap!”

Cheers to you and yours Ford, and have a Merry Christmas from us down under.

Like many other firms, a client of mine is having trouble getting those employees just below the partner level to sell. The firm serves the healthcare provider industry and works for major medical centers. It has grown rapidly over the past fifteen years by dint of hard work, high quality service and good management. Five years ago the executive committee made a decision which contributed to the firm’s growth and profitability: They decided to work only for the largest medical complexes. They also set a lower limit on the size of fee the firm would accept, resulting in their turning away a lot of small projects from small clients. Though there was much grousing about this decision, the committee held it’s ground, and the wisdom of the decision was soon apparent. Firm revenue increased by 35% the following year. A significant share was attributed to replacing small clients and assignments with large ones.

But cutting away the small clients caused a problem that hadn’t been expected. Young professionals had learned to sell by pursuing work that senior partners weren’t interested in. In other words they practiced on the small client, where it was safe. When a small client gave the work to a competitor, the consequences were minor. The same partners were unwilling to let their young colleagues pursue the big accounts where so much money was at risk. When I interviewed several of the firm’s rainmakers, they told me that they, too, had learned how to develop business by going after small prospective clients. In the earlier part of the careers, the firm had been much smaller and there were fewer large medical centers to sell to, so selling to small clients made more sense.

And just where are the future leaders of the firm to hone their selling skills now? Can they be licensed to sell a limited number of cases to small clients? Will the senior partners commit to mentoring them more diligently than in the past, allowing them to learn while pursuing work at larger accounts? No one has the answer yet. Unless, of course, you look beyond the narrow field of selling professional services.

Over the past quarter century, General Electric has been consistently among the best developers of executive talent. As GE and its business units grew the company ran into an analogous problem to the one we are contemplating here. The businesses were just too big and the stakes too high to be left to green managers. So, where were new managers to learn to manage? GE’s answer was the lemonade stand. The term was company argot for small businesses, often acquired as part of bigger businesses. Instead of selling these assets off as unneeded, some would be kept as training schools for new managers. If a new manager screwed up, it didn’t matter much. After all, it was just a lemonade stand.

I believe in setting lower limits to project and client size. It’s a great way to increase revenues and profits. But let young professionals learn to sell where its safe. Let them practice selling two or three pieces of business at small accounts before you ask them to sell something big to a huge one. If they lose such a sale, it doesn’t matter much; it’s only a lemonade stand!

Maurie Fulton, a rainmaker who gave me my first job in consulting, knew his field cold and, just as important, knew his clients.  Through years of negotiating fees, he was familiar with every ploy that clients would use to get our fees down and had effective counter ploys for all of them.  Whenever a prospective client would try a ploy, he would real off his standard response with such grace and confidence that the clients would usually move on to another subject without further comment.  Here are a few client ploys and Maurie’s counters:
 

Client Ploy: Someone Else is Cheaper
Counter Ploy: The Butter Story
 

On hearing our fee, the client would say that they were talking with one of our competitors who would do the work for less.  “So, why don’t you use them?” Maurie would ask, sensing this was just a ploy.  Not expecting this question, the client would say that the competitor couldn’t start as quickly or didn’t have quite as much experience as we did, and Maurie would respond with his butter story.  “It reminds me of the woman who told the grocer that the store down the street sold butter for half his price.  ‘So, why not by it from them?’ countered the grocer.  ‘Because he’s out of butter,’ said the woman. To which the grocer responded, ‘Lady, when I’m out of butter I sell it for half off, too.’”
 

Client Ploy: This Could be the Beginning of a Long   Relationship
Counter Ploy: That’s What I’m Afraid Of
 

The client would suggest that this would be the first of many projects he would give us, if we just gave him a break on our price.  And with a twinkle in his eye, Maurie would respond, “You mean that this could be the beginning of a long relationship? Yes, a long and unprofitable one.”

Client Ploy: Existing Data Makes You Cheap
Counter: Let Me Help You Find Someone Else  

On seeing our impressive array of proprietary information, the client would say that with all that data on file, the cost of our service would be low.  Maurie would smile and respond, “If you wish I can introduce you to several people who are much less expensive than we are, who don’t have any of this data.”

These kinds of statements by clients should be taken for what they are, offhanded attempts to wheedle your prices down.  Remain calm and try one of Maurie’s responses.  They almost always work.

Readers,do any of you have effective responses to common negotiating ploys by clients.  If so, would you share one?