The art of negotiation: Getting your clients to pay more
How to use pricing techniques to create bespoke quotes that maximise the value of your offering
Many businesses don’t sell standard products so price can become an art of negotiation.
If you work in a consultancy, or in most professional firms, or indeed in any kind of service, there’s a good chance that you prepare a custom proposal and quote for any client, and then negotiate from there to reach a final price.
Whilst it may not seem as obvious as with a physical product, price positioning is still important – working out the values of the client and deciding how to pitch your service. You can do this even more accurately when you know the concerns and wishes of the specific client.
Price differentiation and anchoring work too. A good way to do this is usually to offer the client several different services, starting with a very expensive option, and then gradually scaling down to a more limited version.
Provide your clients with tiered-pricing options
A management consulting firm might start out by offering the client a project costing £1.5m plus 2% of client revenues over three years, and then offer a set of more cost-effective or lower-risk options at £300,000, £100,000 or £40,000. As long as the services are clearly distinguished from each other, this encourages the client to reveal how big a budget they are willing to spend by selecting the option that fits best. (If you can get them to tell you their budget in advance, that’s usually even better, but be aware this risks getting the client mentally anchored to a figure, where you might otherwise have a chance to influence them to go higher.)
You can use hyperbolic discounting and decoys in the same way as with a standard product, as well as social effects by discussing what other clients are already paying. You can also research what the competition is likely to do and respond accordingly. The main challenge is the time it takes to draw up a customised quote. Fully analysing the situation and deciding which pricing techniques to apply could take a few hours, days or even weeks.
Create an adaptable pricing formula
You may want to draw up one formula that you can apply in many different situations. An example might look like this:
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|Estimate the number of hours required for the service, and your standard hourly rate||Standard option||100 hrs × £120/hr = £12,000|
|Add 60% to the hours and 30% to the rate for a ‘high-service’ option: the client will receive personal attention from a senior person, extra project management and other additional services||Premium option||160 hrs × £156/hr = £24,960|
|Add 30% to the hours and 20% to the rate for a middle option||Advanced option||130 hrs × £144/hr = £18,720|
|Offer a subscription option: divide the Standard Option price by 15 to give a monthly price over two years; this includes standard service plus some followup meetings and additional support||Subscription option||£800/month over two years|
|Offer a value-pricing option which ties your rewards to the number of new customers they win, or the productivity saving they make, or some other measure. This will nearly always work out much more expensive than all the other options, so they won’t choose this one, but it shows that you’re willing to take a risk and work with them||Partnership option||(e.g.) £2 per hour of staff time saved|
The details will vary according to your industry, but this is one example of how to construct a bespoke quote without going through a time-consuming analysis every time.
When it is time for a face-to-face negotiation, the psychology has a lot in common with pricing approaches, but some of the subconscious messages that you usually convey through pricing can also be put across directly in the negotiation.
Show confidence in the value of your offering
After all, your pricing structure conveys your confidence in the quality and value of your product; it shows that you are willing to be reasonable and tailor the price to the budget of your client, as long as they accept the appropriate tradeoffs in features or benefits; it allows you to defer the client’s pain to the future or shift it onto someone else; and it demonstrates that you can walk away from the negotiation because you have other clients who are willing to pay for your product or service. All of these factors apply in a negotiation, and your actions and demeanour should be consistent with them.
This means that you go in confidently with your price, making no apologies for it. If the customer asks for a discount, you only offer it to them in exchange for some reduction in the benefits of the service. The reduction in benefit may not be exactly proportional to the reduction in price – you need to judge how important saving money is to the client relative to the other benefits you offer.
You should be creative with offering solutions that delay payment to the future or tie it to pain-free events like increasing the client’s market share. If they push you too far you need to be willing to say no (though you can play safe by saying no on a small point, to gauge how much they are willing to bend, before taking the risk of walking away from the whole project).
The basic psychological points for negotiation are the same as for pricing: understand and take control of the expectations of the other party; give them a choice between several options on your terms, not theirs; and make the payment distant – emotionally or in time – but make the benefits close, visible and highly salient.
The Psychology of Price: How to use price to increase demand, profit and customer satisfaction, published by Crimson Publishing is available on Amazon now.