Banking

Ease consulting clients into your payment structure

During client negotiations, consultants sometimes forget to serve their own interests first, especially when it comes to payment issues. Here are tips on how to ask for your desired payment structure and how to know when it's time to walk away from an offer.
 Editor's note: This article was originally published November 7, 2002.

For Celia Hartman, it was a consulting gig that she actually didn't want that helped her ask for what she really needed.

Hartman, a content and IT consultant in New York City for 12 years, who usually works out of her home, was approached by a company that wanted her to work full-time, on-site for its project. She wasn't particularly interested in the job.

But instead of turning it down, Hartman compiled a list of what it would take to interest her in the project -- the schedule, the pay scale, and the payment structure -- and took it back to the client.

"I said, 'If you are really this eager for me to do this, this is what I'd like,'" Hartman said, "and they said yes."

Don't be afraid to ask

Hartman said in this experience, she learned the first rule of negotiation: overcoming the fear of asking. "I learned the people who are hiring me aren't saying, 'What would she like? What would make her happy in this situation?'"

For the past eight years, Hartman has continued working with the company and has used the experience to craft proposals and payment structures for potential clients that better satisfy her needs.

The other result of the experience for Hartman was a swearing off of clients and projects that underpaid or that did not pay on time.

Asking for the type of payment structure you require, whether it's a monthly retainer, a percentage up front, or a project fee vs. an hourly rate, is critical to your success with a client, according to Steven Cohen, author of Negotiating Skills for Managers and president of The Negotiation Skills Company.

"Negotiation is not a competitive sport. But your obligation is to serve your interests first; otherwise, you'll do a lousy job at meeting the interests of other parties," Cohen said.

Listen to the client's needs

Trying to understand the client's point of view, and doing some preparation before you go into talks with a client, can lead to a quicker and more satisfactory resolution, said Cohen.

"A French management consulting firm with whom we did a lot of work...said for every 15 minutes they spent preparing, they saved four hours of negotiation time," Cohen said.

Whether it's 50 percent up front, milestone payments, or monthly invoices, actually hearing what clients are saying about how they can or cannot pay you can make or break the talks.

For example, Hartman explained that she typically charges clients on a per-project basis. But one recent client insisted it had never paid a consultant that way before and needed an hourly fee. Though her initial fear was that an hourly billing would actually shortchange her, Hartman broke her project fee down into an hourly rate and was able to get the client to agree to an hourly fee for a set number of hours that would equal her project total.

By reorganizing the information in a way the client could understand, Hartman got the job.

Be assertive about your needs

Hartman stressed that consultants need to be forthcoming about payment issues before accepting an engagement. Often, consultants have the tendency not to address the issue because they don't want to scare the client away.

A brief, single-paged document, which breaks down the rate of pay, the pay structure, and any other details that have been discussed, is all Hartman gives her clients. She asks the clients to sign it. Although some of her clients have been surprised that she would have it all in writing, all but one agreed to the document.

"I've just generally found that for clients who don't want to discuss [payment] up front, it will be an issue later," said Hartman.

Consultants who simply write down their own personal and business needs are a step ahead of the game, Cohen said. By making an agenda or a hierarchy of interests, a consultant has solidified in his or her mind what is most important.

"Even if they don't take it with them...they still have thought about it ahead of time, and they have reminded themselves, 'I've got to pay attention to this,'" Cohen said.

Assess the BATNA value of the deal

Should the negotiations face an impasse, it's time to determine your BATNA (the best alternative to a negotiated agreement), Cohen said.

The concept, developed in 1981 by Roger Fisher and William Ury in their book Getting to Yes: Negotiating Agreement without Giving In, is a widely used negotiator tactic that determines the value of alternatives besides the desired outcome of the negotiation.

For consultants, that can mean measuring trust, honesty, and the likelihood you're going to get paid, as well as considering the type of relationship you and your client could have if things move forward, Cohen said.

Outlining your acceptable alternatives -- for example, knowing that you would accept a monthly payment over a bimonthly payment or that you'd agree to 30 percent up front over 50 percent -- strengthens your position at the bargaining table, Cohen said.

In the same respect, knowing that you could have a long-term relationship with the client if you're willing to be flexible on the payment terms is something to consider.

Asking for a percentage up front is how Stephanie Cockerl, a Web developer and consultant in New York, deals with a new, unknown client. "If I don't trust them as a good credit source, I ask them for a small percentage up front. I don't always do that; I just go with my gut."

Don't be afraid to walk away

Sometimes, the BATNA in the negotiations is the option of walking away from the deal. Cohen suggests that it's better to pass on a job that could make it difficult to cover expenses or one that could damage your reputation with other clients if the project takes you away from other commitments.

"You look at the interest of the stakeholders, and you have to figure out when it is time to walk away," said Cohen, who urges consultants to trust their gut.

Likewise, Hartman suggested that if your gut tells you something isn't right, follow it. For instance, Hartman was asked to complete a quick round of work for a client, but because she had reservations about the client's stability, she asked the client to pay her half of the project fee before she began work. When the client balked at the request, Hartman agreed the work would instead be complete by the time she received the first half of the payment.

The first check made it to her door by FedEx the next day, but the second half remains unpaid. "I knew there was a reason I insisted on that," said Hartman, "because I wouldn't have gotten paid anything for it."

In the end, if you're unsure of the relationship and the future with a client, walking away from the project remains an option. Cohen noted, "It's better for somebody else to not get paid than for you to not get paid."

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3 comments
Sterling chip Camden
Sterling chip Camden

Never be afraid to ask for what you want, and don't be afraid to walk away if the negotiated terms are unacceptable. Bad business is worse than no business at all, because it will keep you from finding the good business.

ssharkins
ssharkins

I've never done a good job of properly assessing project fees, so I charge an hourly fee instead. Nobody seems to mind. I've had two clients drop projects near the end -- paid all the way through the project, faithfully, and then just dropped the ball within a few weeks of being done. Now, I suspect that their in-house "experts" finished things off once they got the main logic working -- possible in both cases, because they had folks in-house with enough expertise. I don't know how to protect myself against that, both bailed out on their last invoice as well -- neither ever paid for the last week's work and pursuing them would've cost most money than they owed -- gotta figure that risk into your overall fee, because it does happen.

Sterling chip Camden
Sterling chip Camden

I, too, have had projects dropped -- through no fault of my own, just changing business priorities. Either hourly or retainer covers that, whereas if you bill by the project you could get stiffed for the whole thing. Personally, I've always been able to collect. Just bitch and moan long enough and eventually they'll pay.

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