Do you ever get resistance to your fees?
I’m certain that everyone has faced-off with a ‘negotiator’ client more than a few times in their career. But what should you do if you’re sitting across the table from one?
- Hang tough and tell them it’s this fee or nothing? (and risk losing some work)
- Negotiate? (which means discounting your fee)
If you negotiate:
- When does it make sense to do so?
- And importantly, when doesn’t it make sense to do so?
And what about these issues?
- Do these ‘negotiator’ clients negotiate with everyone they meet?
- Would they have tried to negotiate you downwards from whatever starting point you set?
- Do you communicate the benefits of your service well enough?
- Are you value for money at the fee levels you want to charge?
Oh my goodness. So many things to consider.
If you ask 20 advisers, you’ll probably get 21 different answers.
It’s a really confusing issue, particularly perhaps for those advisers and planners who are less experienced, or those who aren't quite sure of their value proposition.
Don’t be bamboozled by any bolshy types who give you their tuppence worth. I guarantee they felt just like you at some stage of their journey.
When you’re sitting in front of a ‘negotiator’ your thinking has to be crystal clear, and that needs to be developed away from the client meeting room. You can’t wing this one in live combat.
The real issue
In my experience, people negotiate with you when you're not 100 per cent sure of yourself.
The minute you get 100 per cent clear, they stop appearing in your life. Or if they do appear, you strike them down before they get very far, because you are absolutely clear on where you add value.
Understanding your value and being able to demonstrate and communicate it to clients is the key.
I know some advisers try to justify their fees by explaining to clients they are taking on risk when they take on a client.
While that's true, I hate that approach.
As a client I’d be thinking to myself: “If you can’t stand the heat, then get out of the kitchen.” It just sounds like a moan.
Others use the “compliance burden” argument with clients, and I hate that, too. “Not my problem”, is what I’d be thinking on that one.
What are some of the things advisers do that add value to clients?
- Saving them time
- Cutting through any jargon
- Providing a clearer understanding of their choices
- Calculating a financial target they can work towards
- Validating a target they’ve come up with themselves
- Providing an expert second opinion
- Keeping them on track and aligned with their real-life goals
- Removing the emotional pain or fear about a financial decision
- Or helping them manage their emotional baggage around money
It’s a pretty decent list.
But you do more than that. You add value to people in cold hard cash, too.
And it’s showing clients these cash wins that makes it easier for them to see and understand your value before they come to understand your true worth, which is providing certainty and peace of mind.
Knowing how and where you add value definitely helps with the negotiators.
So in a lot of cases, rather than negotiate, you’ll want to make sure you ‘show’ clients how you add value in cash.
That might be built into your client engagement process via the use of case studies, or stories that you tell along the journey.
Defence against the dark arts
The best defence against the ‘negotiators’ is to be asking great questions at your very first meeting with a new prospective client.
Asking great questions allows the client to discover for themselves what the big issues are that they face.
Rather than you telling them, they sort of work out that they don’t have a pension problem or an investment problem, they have a “how much is enough?” problem, or a “will my money last as long as I do?” problem.
The person who gives them that realisation is hugely valuable. It’s then far less likely that they’ll be haggling over fees.
When should you consider discounting?
Believe it or not, there is a time and a place to consider agreeing to a discount.
One of the characteristics of selling a service is that you can’t store inventory.
If I sell widgets, I can make the same number of widgets in my factory every week (regardless of demand) and store them up now, because I might sell more at Christmas.
I can manage fluctuating demand by accumulating stock or running down my stored inventory if demand increases.
In a service business like financial planning, you can’t store stock. If you're not busy this week, you’ve lost that production forever. Because of that fact, discounting can make sense as a strategy.
So if your negotiating client is giving you a hard time while you’ve got five other large, well-paying jobs in the pipeline, you don’t discount.
But if they are your only job in the pipeline and the difference between securing them or not is discounting a bit, I might decide to do it. At least that way I haven’t wasted this week’s capacity.
Clearly, this is only true in the short term.
If you find yourself discounting all the time, you are going to pay long-term consequences in your net profit margins.
But if it only happens sometimes, on some jobs, I wouldn’t be overly worried.
What about large jobs?
Large jobs do sometimes warrant a discount from your standard pricing, because at the end of the day you’ve only got to get paid ‘enough’.
If the job is big enough, and I still think I’m going to get paid enough, I might accept a discounted price if I felt it was the difference between getting the job and losing the job.
If I secure a client today at a discount, I can always go back in two or three years and try again to fix the fee level.
In three years I’ll know more, have more skills, and might have so many new clients that I actually don’t care if they accept or reject my offer. That is, I’m in a stronger position financially than I was three years ago.
On the flip side, some jobs paying larger headline fees can also demand a lot of you and your team’s time, and not be profitable at all. So be careful pricing these.
Overall, as I’m sure you’ve worked out, a lot of these decisions on pricing and negotiation are going to be firm and situation-specific. What’s the right decision for one firm may be totally wrong for another.
If you can be clear on where and how you add value to clients, you’ll find the ‘negotiators’ become a non-issue for you and your business.
Let me know how you go.