In this economic recession, some clients put an increasingly higher pricing premium. They have no tolerance for prospective revenue negotiators putting new proposals above the lowest possible price. In fact, new proposals are more an exception than the rule.
Many of my clients don’t originate from the same budget and have different reasons for the change in their focus. They may not be prepared to give up anything, but they will insist on making some changes in how their proposals are priced. When there are numbers involved, they try to get a number that represents the best value without losing revenues.
At the other extreme, companies have gone too far in their negotiations. Many are doing deals below cost, basing their pricing on factors such as:
Let’s say a company is offering a proposal to your company that appears to be well-fit, but you start to question the value they are getting from their proposal, especially if your company is paying a higher price. At some point, you will have to make some decisions, and then you can “take them back.” This is not a situation to grab the first deal available, buy the best price, and believe the deal is done because you did a great job laying out the proposal.
Before you charge the company for a solution, ask for the number of additional proposals they are currently negotiating. It will change how you approach the price. Taxi analysts call this general quote. Generacigs are different from standard quotes in that it serves as a measure of the economic value involved in the deal. For example, if my company is paying 24.8% over salary and they are negotiating to spend 18.2% per year in overhead, the first round of four bids we do will be distinctly higher than the last 4 bids. Regardless, the others will cost more than the cost offered by the company, and I’m reminded that the favored proposals have a return on the investment selected as the filter.
The real mystery to pricing is in the number of times prices can change. When it comes to the last proposal from this team or the last price from each potential supplier, the price suddenly exceeds your company’s range, raising the hiring budget. This is the phenomenon of entering into a death spiral. You’ve got access to more proposals from competitors, and all you can hope to achieve is had dollar volume on the best deals.
However, achieving competitive prices can be hard work. The number of bids you approach usually outstrips the estimated quantity. You’re more likely to get a competitive quote from the last seller getting the deal, which is crucial and often due to the leader’s higher price when they worked on the deal.
When I work with a client whose perspective is going through me, I try to tell them that the deal is worth every cent we’ve worked on and that you can’t negotiate a higher price, or they are going to end up not going with you. If that doesn’t motivate them, then the numbers will lower the value of your proposal. However, when there is someone else who will do the deal for a much lower price, it always seems like a lucky break.
Pricing should relate to the amount of revenue/profit you expect to derive out of the relationship. Your accountant may be a great negotiator on pricing and you, too, may have your own subordinates who are in love with the price. However, being abreast of the prices your company can get from your active and passive competitors is vital. If there is a competitor who is the leader of your product line, keep asking for quotes because they are going to do it, and get them to match it. After all, that’s why companies do deals with them.
How I charge my consultations is also dependent on the investment, I expect to make in it. For me, engagement fees are my investment in working with the company and identifying their needs, defining parameters we will negotiate their fee/paid time. Suppose my involvement in hiring a consultant is much higher than the investment I want to make. In that case, I will be hesitant to engage with them until I have fully explained the work, concrete ways of achieving them, and a clear, documented plan of how much time, attention, and effort we are allocating to the negotiation.
To answer the question raised above, the magic number to go about is to lower the number and increase the trade-off. Every offer is a mild compromise between the two companies. The negotiation really becomes a compromise, and the client comes away wondering if the overall package is what they were really looking for. It is my job to show them that it is the right choice in order to maximize the return on their investment.