From: http://www.bizjournals.com/
A self-employed friend recently came to me seeking advice on a negotiating problem he was having with one of his consulting clients.
He had responded to a request for a proposal from a major Seattle-based software firm (that shall remain nameless) to make some Web-based how-to videos as part of the market launch for the introduction of a new application. My friend is very talented and an expert in making short, high-production-value videos, having produced them for many small and large companies for the last five years. He has a great list of references and a body of work that is unsurpassed in quality.
He thought his proposed pricing was reasonable and in line with the average in the marketplace. In spite of this, the software firm responded to the proposal with a request for a discount from his first-offered price.
This is a dilemma often faced by talented people in a “gig” economy. Because big companies often consider consultants as “vendors,” it can be standard operating procedure to ask for a discount from the original price quote. Or it can just be the way they do business.
The challenge for a self-employed consultant is figuring the best response to a request like this that doesn’t jeopardize the opportunity but also avoids giving away the profitability that small business people need to survive and thrive.
In preparing to respond to such a request you have to understand the crucial relationship between selling and negotiation.
There are only two ways to close the gap between the low price a customer wants to pay and the higher price you want or need to charge; you either convince the customer that the value of the product or services you provide is worth the price (that’s called selling) or you trade concessions until you reach a price you and the customer can live with (that’s called negotiating).
In other words, the better you justify your price, the easier it is to hold your ground. But the knee-jerk reaction, especially for self-employed consultants, is to cut the price in hopes that you will get the business and the customer won’t ask for anything else.
I asked my friend how he thought he should respond to this discount request. The best he could think of was to offer them a 10 percent discount and see if the buyer would bite and not ask for any more concessions.
The problem with this response is that you communicate to the customer a) that this tactic works on you and they can expect it to work in the future and b) that you also consider yourself to be just like all the other vendors they deal with.
But is there a credible response that both communicates value and doesn’t create the risk of losing the business? The good news is that with a little thought, you can avoid both problems.
So I asked my friend, “What is it that makes the price you charge fair and reasonable?” His response was that his work is of high quality, he always meets and often beats deadlines, he has a track history with other similar projects of exceeding customer expectations and that he has very good references and referrals within the same industry. I was sold. But that didn’t matter.
His customer needed to be sold. The problem was that even if we made this argument, the customer might just decide to go with another, cheaper “vendor.” The software firm might just decide that it was too much hassle to deal with my friend. But there were at least a couple of signs that the customer would really prefer using my friend’s services if only they could get him to cut his price.
So together, he and I crafted an email that avoided both issues.
It went like this: “Thanks for expressing your interest in using my services as a way to add value to your customer experience. Based on the value I have proven to my customers in the software industry including the high-production value of my videos, my understanding of your market and the high quality of my references, I believe my prices are both fair and reasonable. That said, because I value the opportunity to work with such an important organization in your market, I am open to anything you might want to throw on the table that could possibly reduce your costs and ensure I receive compensation that is commensurate with the value I bring to your company. I look forward to hearing from you to discus further. Is there a time that works for you to have a short phone call or WebEx?”
It worked great, and in the end my friend got the business at his originally quoted price.
For some reason, the most common reaction to a request from a customer for a discount to the price of a product or service is to try and figure out how much of a discount to offer.
I recommend that the first reaction should be to defend your price, not cut it.
Steve Reilly is a principal at SPJConsulting and author of the just released book “Negotiating With Tough Customers.”
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