A recession is a scary time for the person trying to maintain the financial health of the agency.
I got into a conversation with a fellow CEO the other day about the pressure agencies are under to cut prices to win new business. We shared notes on what we’re seeing when it comes to price negotiation. The top three things we identified:
- Senior executives dropping their prices, fees or hourly rates upon request.
- New business people offering free work or other freebies at the first meeting.
- Quickly matching competitors fees as soon as a prospect mentions that they’re speaking with them.
Pressure on price creates a dilemma for an agency
- If you cut your fees, you create a precedent for the future – you’re willing to work for (much?) less than stated rates.
- If you don’t cut your fees, you may feel you won’t have the revenue you need to avoid layoffs, or worse.
I know from experience that there’s serious pressure to lower prices in a recession. Sometimes it feels like the easiest way out is to succumb to the price-reduction pressure with a rationalizing comment like, “It’s what we have to do to survive”.
But I disagree. You can win and not cut your rates, or perhaps only drop them 1-2% . It comes down to your negotiating skill. There’s so much written on how to negotiate – just do a quick search and you’ll find reams of information.
So, I’ll just offer four suggestions – things that I’ve found to be successful in good times and bad. Hopefully they’ll work for you, too:
- When asked for a better rate, think before you speak. For example, what value-add can you offer that doesn’t cost you much, instead of reducing your rate?
- Don’t believe everything you hear. Particularly in larger client companies, those charged with negotiating are very skilled and are able to tell a compelling tale of woe. Recognize that it may not all be true! Consider the negotiation a dance: you have something they want and they have something you want. Be prepared to tell your own stories and stand firm on your quality and value.
- Just say no, and then be quiet. Say “no” and then present a logical, persuasive argument why you won’t reduce your fees, and then stop talking. Be comfortable with the resulting silence. Oftentimes, agency principals are uncomfortable with the silence and consequently offer up a discount, thinking they’ll lose the business if they don’t. Instead, you may find that your prospect thinks it over and accepts your argument.
- Be prepared to walk. Know what you want and how far you’re willing to go on price – beforehand. This knowledge gives you a negotiating advantage; don’t be afraid to use it. Your commitment will show – to your opposite number and to your team.
The fun part of negotiating is that, done well, you’ll be able to share a laugh afterwards, each side recognizing the other’s skills. Caving on price is not the way to earn respect. So, stand firm, proud of your people, your culture, your service and the value you provide your clients.
