Management Consulting Essentials: Negotiating the price and payment terms.
Posted On January 30, 2012
This is the 10th post in a series of posts addressing the issue that too many independent management consultants are working too many hours for too little pay.
See the end of this post for a summary and a list of subjects in the series.
This post is about negotiating the price and the payment terms
The price and the value
The value of your consulting must justify the price you ask. If the value you provide is uncertain or the issues you are addressing are non-critical any price you quote will be too high. If your consulting services are easy to substitute the competitive pressure will drive down the price you can ask.
The price you can ask and your negotiation power is determined by the issues covered in post #1 – #9. If the client is finding your price too high after you have submitted your proposal, then you have missed something in your positioning, in your qualification of the client and/or in your qualification of the project/assignment.
Never negotiate the price
I know there are many philosophies on price negotiations. When it comes to setting the price for services provided by an independent consultant my recommendation is clear:
The price you quote the first time must the right price.
The value of management consulting is normally magnitudes higher than the price being paid for the consulting. It has no impact on the clients’ business case that you reduce your price with 5-10%.
The price can only change if you also change the deliverables. If the client is not prepared to pay your price, and is insisting on wanting all the deliverables associated with the price, then you have one option only: Stand firm and don’t give in.
The payment terms
As an independent management consultant you must always get an up-front payment when signing the contract. A consulting contract with no up-front payment is the same a no contract. With no up-front payment the client has not committed himself to the project.
How much up-front payment depends on the length of the project. For shorter projects 30-50% is appropriate. For longer projects an amount equivalent to 1/n’th where n is the expected duration of the project in months.
I meet and talk with a lot of independent management consultants. 99% of them are extremely busy. They are so busy that they have little time to learn new approaches, keep up with the development in their area(s) and develop their business. Most of them even complain that they are too busy. They also use their busyness as an “excuse” for not being responsive and not meeting deadlines.
When I ask why they are so busy the unison answer is: “client projects”. My response is: “Fantastic, you must be making tons of money?” Answer: “Silence.”
The silence continues when I ask them: “When will you increase your prices and with how much?”
This series of posts will address the “many hours/low price” issue, explain the causes and provide recommendations for how you can remedy the situation. Applying the ideas should enable you to work less hours, make more money and have more fun at the same time.