A lot of professionals struggle to fully understand the link between pricing and negotiation. Here are some thoughts to help understand how pricing and negotiations are linked.
Many professionals find it difficult to differentiate between “setting” and “negotiating” the price of an assignment. These professionals look for arguments (i.e. logic) to justify the price that they think appropriate when talking to clients. This often leads to disappointment as clients don’t react positively to their argument. Professionals have to remember that a negotiation is a matter of needs and wants rather than logic.
In the worst case these professionals fail both to establish a logical basis for their pricing as well as to handle the negotiation in a constructive manner.
How to address this
The best way to avoid falling into this trap is for professionals to apply the concept of the “Golden Triangle” as outlined in the introduction of High Impact Fee Negotiation and Management for Professionals. The triangle helps differentiate between activities required to set the right price and fee structure for an assignment and activities required to agree the right package in terms of work and fees. The negotiation should also address other important terms and conditions.
Setting the fee is a function that should make heavily use of logical thinking. This should include issues such as cost of delivery, competitive alternatives, the value of the work and other factors.
Negotiating a fee is more a function of positioning the price in relation to the value that the client will get from the overall service delivery. Although it does start with a price, there is much more to a fee negotiation than solely justifying a price, such as the right approach to trading concession, being creative, ie value creation and value sharing.
Both of these activities are needed and both require a mixture of “logic” and “trading” but professionals should not confuse these two very different elements to successful fee management.