Stop Negotiating Your Own (Pay) Rate Down

Piotr Krzyzek —  September 4, 2013 — Leave a comment

We’ve all been there, negotiating against ourselves and ending up loosing out on money from a deal simply because we didn’t talked ourselves into a lower price. It sucks, I know. Today we’ll go over some examples and what you can do about it.

Stop Negotiating Your Own (Pay) Rate Down

image by jaylopez at http://www.sxc.hu/photo/912745

So you finally got the meeting with the client, everything is going well and then they pop the dreaded question “How much is this project going to cost?”

Unless you have set prices for certain extremely specific services (or products) then there is only one and only one correct answer. Sadly, many of us answer incorrectly. I’ve been guilty of this and I’m certain you have been as well. Many of us have at one point or another answered:

  • bad answer: The price is $50,000.
  • even worse answer: The rate is between $30,000 and $50,000.
  • worst possible answer: The price is $40,000, but I can do it for $25,000 if that works better for you.

There are many variations on how bad these answers could. For example, from Sophie Lizard at Be A Freelance Blogger:

ME: Yep, I’m available from the first of the month.

CLIENT: Great, and how much do you charge?

ME: For this project it’ll be $400 per week… Or, you know, I could probably make it $300…

Another example from a LinkedIn article by Jacky Carter:

My market value is $90K/year but I’ll take $70K.

If you’re constantly getting lower rates than what you believe you deserve, read on.

In all honesty, if could be that you lack the experience needed for higher pay. Barring the lack of experience, there are only a few reasons why you’re pay sucks:

  1. They really just don’t have the extra cash.
  2. They just want to cheapest option.
  3. They don’t trust you enough.
  4. You talked yourself into your own low pricing hole.

Numbers one and two you cannot do much about. Maybe for the first one you can start a smaller project to get in the door. Number three is an issue of trust, relationship building and addressing their real needs like a human being … but that’s for another article.

If you’re like the above examples where you’ve gotten yourself into low pricing, here’s what you can START doing. It’ll be difficult to increase the price on existing clients, but new clients are fair game for these new strategies and higher pricing!

1) Do not give out pricing upfront; give yourself time to think.

This is the biggest mistake I see many people make. They are asked for a price, and give blurt out any ‘reasonable’ sounding price. Wrong.

  • Did you have enough time to fully understand EVERY part of the project?
  • Were you able to make a decision that is completely clear minded, level headed and logical instead of rash and emotional?
  • Do you really have all the info to make the decision?
  • Have you thought through all the possible costs (and profit) for the project?

When you’re sitting across from a prospect and they ask for a price, you certainly didn’t have enough time to collect your thoughts and make a level headed decision about price. Heck, you’ve just learned a great deal of new information. You need time to process all of it, get it down on paper and truly think things through.

You won’t offend prospects by NOT telling them a price at that very moment. Really, you won’t. I’ve been doing this for a long time now, and I have yet to offend anyone by telling them this when they ask for price:

The price? Well, to be honest I don’t know at the moment. I really don’t. I’m going to have to go back to the office, process everything, organize my thoughts and get back to you on that.

Or some variation of that. Works like a charm every single time.

2) You give them a pay range that starts low.

A question you’ll certainly get asked is something along the lines of

Them: ok, I understand you can’t give me a price at the moment … but do have a range for this type of project?

That’s a safe question right? Wrong! It’s very dangerous. If at this point you tell them that “the range is between $10,000 to $25,000 and up depending on goals and needs”, take a guess where they will be expecting the project to be at? Near the $10,000 of course!

There are two ways out of this question, one is to answer with a large enough starting range (but no ending range) or simply divert from the question.

Here’s an example of giving a good starting range:

Them: ok, I understand you can’t give me a price at the moment … but do have a range for this type of project?

You: A project like this typically starts at $20,000.

Or if you’d prefer not to give them a number:

Them: ok, I understand you can’t give me a price at the moment … but do have a range for this type of project?

You: A pricing range? Your project needs and goals are rather unique so I’ll need some time to go over everything we discussed to see how it can be put together.

On the very rare occasion someone will press you for some sort of number. An easy out is to throw a really off the wall very high number out there in a joking manner:

Them: I know you need time, but I really need to some at least some range to go over it on my end. Can’t you get me some price at this point?

You: well sure. We can start at $5,000,000, I can begin tomorrow morning.

Them: Ok yeah. I’d like $5,000,000 too. So you really can’t get me a price?

You: Nope. Like I said, I’ll have to go back and process everything we talked about to even begin to get you a remotely accurate number.

3) Don’t accept their first counter offer.

All too many people are afraid of confrontation. To a degree, contract negotiation is a type of confrontation but it doesn’t have to be a scary one. If they, the prospect, are already talking to you, interacting with you, asking you question and answering your questions it means they are legitimately interested in your services. So they will probably try to negotiate down your price, I mean common, who doesn’t like getting a good deal right? But they aren’t doing it to be rude nor mean to you personally. It’s business, why pay more for something when you can pay less for the exact same thing?

Many prospects will counter offer. There is no rule in any book that says you have to accept it. If they completely low ball you, you could always walk away without any hurt feelings from either side. But don’t just accept any ol’ offer they throw back at you!

That’s why it’s call negotiation! Go forth and talk! Discuss! Negotiate!

If you say the price is $15 and they counter with “we’ll only pay $5″. Don’t accept the $5. Say something like, well, I could do $9. If they respond back with $6 … now you know they have wiggle room and are just trying to get a good deal. Work with them.

4) They will only pay a lower rate? Ask them what “value” they want taken away!

“Value”? What value? Value is what you are providing them in the form of solutions, results, delivers, ect… If they don’t want to pay you rate you can simply ask:

You: I understand you can only offer $40,000 instead of $50,000 for this project, that’s fine. I can work with $40,000 but what value do you want remove from this project so that it will fit your budget needs?

At this point, they will either panic at removing good “value” from the project and work with you … or they will stand firm and say they can only offer the $40K for that project. At that point it’s up to you if you want to work for that lowered price or not.

If let’s say this is going to be your biggest project yet as well as your biggest client which will be an amazing add-on to your portfolio and reference list … then I’d say accept the $40K and have them a stepping stone. It all depends on your current situation.

The Moral Of The Story:

Be flexible on what you can do, though make sure it’s flexible on your terms. If they want better pricing, you need something in return to make up for the lost price (either less work or some barter item for example). At times, you need to be strong and just not accept smaller lower priced worked: Once you give the price, don’t open your mouth and talk yourself down!

Sort final funny story (about negotiation):

A few months ago my wife wanted to go to a large flee market at the Rosemont Center near Chicago. For those of you that don’t know what that is: The Rosemost Convention Center is just a big convention center that hosts a lot of events, though the flee market is a weekend summer thing they put on where you can put lots of cheap stuff.

I’ve been wanting a guitar for a while, but I didn’t want to pay much for one because I didn’t know if I’d like playing guitar or not. So all I wanted was a really cheap ‘starter’ guitar. While walking around the flee market one guy had several old-ish cheap looking guitars out for sale.

Since I wasn’t sure what a cheap guitar goes for these days I curiously walk up him and ask about the guitars. The (funny) conversation goes something like this:

Me: So, you’re selling a few guitars right?

Him: Yup, I just need to get rid of a few so here I am.

Me: They look a bit old, do they even work still?

Him: Well yeah, they might need some tuning … ahh, here. Try playing and see for yourself.

Me: Thanks, but I don’t know how to play at all. I’m currently looking for a ‘starter’ guitar. I don’t want to pay much simply because I don’t even know if I’ll like it. So I’m just looking around for now. …. So how much for the one your holding?

Him: Well, I’ll sell it to you for $60.

Me: Uhuh … that seems like a lot.

Him: Well, I can sell it to you for $50.

At this point I raise one eyebrow and give him a curious look while simply saying:

Me: uhuh ….. well, I don’t know.

Him: Ok, how about $40?

I sort of help bad that he negotiated himself down so far already, so I gave in and agreed. So, for doing practically nothing other than an “uhuh” I saved $20 and got a cheap starter guitar for a total of $40. WOOHOO!

Tips and tricks as told by HR/recruiting people on reddit:

http://www.reddit.com/r/AskReddit/comments/1iyz56/hrrecruiting_people_of_reddit_what_do_job/

It’s worth a quick read!

Piotr Krzyzek

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Piotr Krzyzek is one of those rare people who can say he's a consultant, author, entrepreneur and programmer and mean it. His consulting firm, Chykalophia Group, has attracted international startups, Department Of Defense contractors, local mom-and-pop shops and many others from all around the world. He is a bonafide computer nerd with a passion for business, networking and business development.