Are You Negotiating Against Yourself?
Ian Motley argues that fee erosion is often the result of standard negotiation tactics. He explains how to recognise when you are ‘negotiating against yourself’ and how to avoid it.
During your career as an architect you’ll experience many different forms of negotiation – from requesting a pay raise from an employer to discussing design fees with a potential client. Negotiations are inevitable, whether you are asking for something you would like or trying to hold on to something you already have.
How you fare in the process is largely determined by how prepared you are – relying on the good nature of your counterpart in the negotiation is not the best strategy. As businessmen Chester L. Karrass comments, ‘In business, you don’t get what you deserve, you get what you negotiate.
So, how are your negotiation skills? Are you familiar with negotiation tactics such as ‘The Hot Potato’ or ‘The Nibble’? Do you have strategies to help you through the negotiation process?
Since starting Blue Turtle Consulting we’ve worked with a large variety of design professionals, from sole practitioners to large international firms. We’ve noticed a common trend among the design community – when negotiating design fees, the simplest negotiation tactics on the part of potential clients tend to be the most common causes of fee erosion.
‘Negotiating against yourself’
What do I mean by this? Well let’s look at a one of the most popular negotiation tactics – what negotiation experts call ‘negotiating against yourself’. This tactic is always deployed after you have submitted your proposal and it works something like this.
On receipt of your proposal the client calls you and says:
“Thank you very much for submitting your fee proposal. We really appreciate you taking the time to put the documents together. I’m just calling you to let you know that we’ve heard a lot of great things about your firm, in fact you’re our preferred design firm, we really want to work with your firm …”
The client goes on to say:
“However, you’re a little more expensive than the other firms, if you could sharpen your pencil a little it would really help the appointment process.”
Now, it’s not uncommon for people to hear what they want to hear in fee negotiation situations. We all like hearing good news, especially when discussing the fee for an exciting new project. So, many of us will hear the words “We really want to work with your firm…” and we’ll happily tell ourselves this is ‘our’ project, all we have to do is reduce our fee slightly and, voilà!, we’ll have an exciting new commission on the books.
So we eagerly thank the client for the call and, with an extra bounce, in our step we return to our desk, open the original fee proposal and look for ways to reduce the fee.
In this situation it’s not uncommon to reduce the fee by 10% – 10% seems reasonable enough without being too desperate – so we revise the proposal and send it back to the client.
About a week later, just as you’re on the verge of calling the client to follow up on your revised proposal, you receive the call you’ve been waiting for. The client starts by thanking you for the revised proposal and then in an upbeat manner says something like:
“I’ve got some really good news for you. I’m really pleased to tell you that your firm has been short listed for this exciting new project.”
Short-listed! You thought you were already short-listed! After all, the client previously said you were the preferred design firm. Not sure how to respond, you remain quiet while the client goes on to say:
“All you need to do is just sharpen your pencil a little more and you’ll have this project in the bag!”
So, once again, you thank the client for the call and reluctantly return to your office to revise the proposal, this time with slightly less bounce in your step. If during your first round of revisions you took 10% off the fee then this time you’ll only take 5% off. You then revise the proposal and send it back to the client.
Sadly the situation continues to repeats itself and the more time you invest in the client and the project, the more you start to frame not winning the project as a loss. The more you start to frame it as a loss the more you start to engage in risk-seeking behaviour to avoid the loss (for example, reducing your fee to levels you would never have entertained at the start of the negotiation process, believing it will finalize the negotiation).
Eventually there comes a point in the negotiation process when you’re not prepared to reduce your fee any further – enough is enough! It’s at this point in the process that you’re upset with the client, you’re upset with yourself, you’re upset with the industry… and you no longer want to be involved in the project. It’s these emotions that drive you to say to the client, “No – that’s my final offer”.
What happens next? Well, at this point that the client typically does one of two things. They may ask to meet with you in an attempt to squeeze one last concession from you before finalising the agreement. Or a less scrupulous client will take your lowest fee number and shop it to a competing firm to try and force their fee down during the negotiation process.
How can you prevent yourself from falling victim to this tactic?
The way to manage this tactic is to act on the first request from the client, no matter how small the request may seem, and no matter how enthusiastic the client may appear about your firm. At this stage you should always ask your client to be more specific – what will it take to finalise the deal?
Is the fee is the only issue? Has the client accepted your payment terms, copyright clause et ecetera? If the fee is the only stumbling block, can the client confirm the level of fee (or reduction) that they are prepared to accept to finalise the negotiation. The key here is finalise.
If you are lowering your fee you should always be looking for ways to partner your concession with other concessions that are favourable to you. For example, you may want to make your fee reduction subject to a similar reduction in scope or to more favourable payments terms.
Most importantly: make sure you recognise this and other tactics before they start. There are many resources and guides to negotiation available to help you recognise standard techniques. Make sure you are well informed and aware of the most obvious tactics. This – and having some tactics of your own – will help you to avoid ‘negotiating against yourself’.
Ian Motley is a design fee consultant with Blue Turtle Consulting. Blue Turtle Consulting is conducting Fee Proposal Workshops during May 2015 for architects and design professional who want to learn about the art and science of writing more successful fee proposals.