Wednesday, March 13, 2013

16 Ways to Avoid a Haircut, Avoiding Price Concessions in Engagement Negotiations

I wish I had a dollar for every time I heard a lawyer say that the firm’s rates were the reason they didn’t get work. Studies show that 74% of price cuts are started by sales people, not customers. In legal services, that percentage is probably higher! Lawyers agree to discounts on their hourly rates, often without a hint of a prospect’s objection to the hourly rate.

When price objections are initiated by prospects they indicate deeper concerns or obstacles that the company has about a firm. These may include a perceived lack of experience, the low ‘insurance’ value of the firm’s reputation, hidden internal agendas, poor personality fits, internal operational issues, incumbent lawyer relationships, competitive pressures and a host of other issues.

But very often, requests for discounts are routine requests in every negotiation. The firms that lack the will to resist or, at the very least, take the time to explore the root cause of price resistance are the ones that allow profits to leak out of the firm. Training in resisting price concessions pays off handsomely.

Discounts are not necessary to win a prospect’s business. In large part, the eagerness to discount is a function of several factors, all well within the control of the law firm. These include a lack of confidence in the value of attorney services; a belief that discounts are required in order to compete; a lack of sales technique and training in complex sales processes; and a lack of understanding of the buyer’s purchase behaviors to name a few. The truth is that by the time the prospect discusses payment terms the firm has made the short list or the decision to use the firm has already been made. Discount requests typically are final efforts to reap a last bit of value at the height of the final negotiations. And because the 'close' is so near, these requests are usually granted.

Many attorneys assume there’s no risk on the part of prospects to ask for a discount. But discounts can present risk for the client, especially if it leads to choosing the lowest price provider. An inferior result effectively shifts a portion of the blame to the decision makers who choose the lowest rate provider. Choosing the cheapest forgoes the ‘insurance’ value of higher priced services. Additionally, there is an inherent fear, if not a complete acceptance, that rate cuts result in corner cuts. The company hopes that cuts will be absorbed in the firm’s profit margin. The reality is that this is the last source of cuts. Savvy buyers know this.
Working from this common ground of shared risk, several techniques can re-direct discussions away from price concessions and minimize the financial impact.
1. Just say ‘no’.
Present the offer you submitted as a fair and reasonable offer that the firm stands behind. Suggest that the relationship be reviewed at a later date and, if the client is not happy with the value at that point, a discussion about discounts should happen then. Let the prospect push for the discount. Often, the client won’t take the issue further.

Regardless, prepare in advance your justification for why the firm or the attorney’s rates and fees are set at their current levels. Use comparative studies of rates, publicly available records of past competitive bidding processes, projected ROI calculations and other objective evidence of the competitiveness of rates to justify your fees.

2. Use the fact of higher rates as a reason to buy. The market place is a brutal equalizer. Higher prices result from higher quality and service. Long established firms with robust track records of results continue to thrive with higher rates because other clients find value in those fees. Use the power of market success to justify your fees.
This is the first in an eight part series on how to resist price concession requests. Each two new tips will be posted each weekday for eight days.

It goes without saying, if you would like to talk about training your lawyers in resisting pricing concessions, please give me a call. It costs nothing to talk.

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