The Seven Imperatives for Professional Services Fee Negotiation

Clients count on you to help them solve significant business problems. They want the very best you and your firm have to offer. Not just the IP and the infrastructure you’ve invested in, but the extensive experience you’ve acquired putting it to work, the terrific talent you deploy on their behalf (often on little notice), and the "outside-in" perspective and insights you provide. They want you to be responsive, professional, thorough, and effective.

And, of course, they want a "good deal" when it comes to your fees.

Unfortunately, in order to get that "good deal," they often resort to tactics that leave you feeling at least a bit stuck. They plead poverty tell you a competitor is offering a massive discount, or put you through the wringer in a procurement process designed to make you feel more like a paper clip vendor than a trusted advisor.

How do you hold your head up high and defend your value while also letting the client know how much you value them and their relationship? And how do you avoid giving in to the siren song of “even at a discount, we make some money and keep our people learning”?

Having worked with leaders at the world's largest law firms, audit and accounting firms, IT services firms, and other professional services firms, I've heard all the stories: CFOs who consider a discount request on their audit "just a bit of sport" (even when it's clearly not material to their budgets), business unit GMs who in one breath talk about how strategic the work and in the next tell you there's a local firm who can do it for half your fee and those who just leave the dirty work to Procurement even as they press you to free up your best people to meet an unrealistic timeline.

The problem in each and every one of those scenarios is the same: You feel stuck between defending value, and preserving the relationship that you'll need to deliver successfully and to earn additional opportunities.

Next time you enter into a fee negotiation, keep these seven strategies in mind to turn a potentially contentious situation into a constructive conversation:

• Don’t fight fire with fire — even if they dismiss the relationship or denigrate your value, just let it go. They are talking with you because they want to work with you, and you will never improve the relationship by attacking it. But do listen for clues about what matters to them.
  
  
• Don’t make unilateral concessions — if you have to lower your price to be competitive, adjust something else. The trade-off doesn’t have to be a perfect equivalent, but if you didn’t overcharge to begin with, don’t teach your client that they would have been a fool to accept your proposal. Do be flexible and creative in how you structure the work (more on that below).
  
  
• Don’t diss procurement — they have a role to play, even if you don’t like it. If you want to be more than a “vendor,” recognize that your client’s needs include working with procurement and shoulder that responsibility. But do take procurement seriously and prepare well for those negotiations, which means …
  
  
• Do prepare for your fee and scope negotiations — you negotiate like you prepare. (I am so convinced of that, that Roger Fisher and I wrote a whole book on it). If you want to do more than trade sharp barbs and concessions, you have to do some homework:
  • Who are the relevant stakeholders, and what do they care about?
  • What are some creative ways to meet their interests as well as ours?
  • What kinds of objective standards, criteria, or precedents might help each of us explain why this is a reasonable deal?

• Do listen carefully — even the most challenging client counterparts are constantly telling you (although sometimes obliquely) what their interests are: Business problems they need to solve, the timeline concerns they have, which stakeholders are going to criticize them, and a host of other concerns. The more carefully you listen for those, the more you ask follow-up questions to learn more and test your understanding, and the more likely you are to be able to come up with those great problem-solving solutions that people mean when they say “win-win.”
  
  
• Do give client options — you don’t want to make unilateral concessions, but you do want to be responsive. When a client shares an interest, they have put a certain amount of trust in you as a professional to take that interest into account and do something to try to address it. Some interests are going to be fairly predictable, and part of your preparation should be to anticipate and plan for them: How can you deliver results more quickly? How can you staff more efficiently?
  
  To address these questions, ask yourself if there are actions that help you bring overall cost down and still get paid fairly — actions that are high value to you but low cost to the client. Also consider the flip side — if you can’t really impact the cost much, can you provide the client additional tangible value at little or no cost to you?
  
  
• (And perhaps the most critical …) Do help them explain it — no matter who you are speaking with, they’ll have to explain the decision to hire you and pay your fees. It might be their boss, their board, or their regulators. That depends entirely on the scope of your services.
  
  But you shouldn’t leave it to them to come up with ways to explain why they got a good deal. Their audience may be skeptical and assume you simply started high and left room for all those concessions. It is much better to equip your counterpart with relevant standards of legitimacy for the deal — market standards, industry norms, or best practices. You can find those in your marketplace or in theirs. Depending on the industry and the nature of your services, there may be external benchmarks, precedents, or even how your client deals with their own customers. The point is that you (and they) look to and rely on these kinds of indicators for defining the terms of your deal, and you can each use them to explain to the respective shareholders why the deal was appropriate and reasonable.

Negotiating professional fees can feel difficult. We like being on the same side as our clients, not opposite them. We like negotiating on their behalf rather than with them. But it is an essential part of the professional services relationship — one that we can handle in ways that are both relationship-enhancing and good for the bottom line.

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