How would you like to have an extra $10,000 or $20,000 in your bank account? Many IT consultants leave this and more on the table every year by simply not doing a good job of negotiating their rates. If your primary source of income comes from billing clients by the hour, think about the significance of increasing your rate by even $1 per hour. Most consultants bill around 2,000 hours per year, so every $1 you can negotiate puts an extra $2,000 in your pocket at the end of the year.
In this economy, we're inundated with news about the high unemployment rate and the multitudes of consultants on the bench for several long months. As a result, consultants looking for new business are apprehensive about attempting to ask for higher fees, for fear they'll negotiate themselves right out of an opportunity. This is ridiculous. Now is the most important time to negotiate, because nobody in this economy is going to just hand you high rates.
Selling to yourself
Before you can negotiate with clients, you must be centered; you must know your own value and what your contribution to an organization is worth. The first step in doing this is assessing where you stand on the commodity-specialty scale. If your skill set is the same as everybody else's, you are a commodity and will have a hard time negotiating; if, however, you have a unique specialty or combination of skills, you're a specialist and have a lot of negotiating power with the right clients.
After building up a great proficiency as a business intelligence and data warehousing specialist, I proactively pursued a competency in project management and process improvement, obtaining a Project Management Professional (PMP) certification and a Six Sigma black belt. Now, I've added leadership and strategy to my arsenal. This combination of skills makes me a very valuable consultant in the marketplace.
Negotiating with clients and third-party agencies
Once you recognize your value, you're ready to negotiate fees with clients. In general, there are three types with whom you'll be negotiating: clients with objectives, clients with budgets, and third-party agencies. I've listed these types in order of negotiating difficulty, with the first being the easiest.Clients with objectives
These people are typically high-level buyers who have a job to get done, but they're not necessarily concerned with how it gets done. I suggest you try to move them to a fixed-bid contract for your benefit and theirs. It's actually quite easy to negotiate with these clients, as long as you focus on their result and what value it means for them; you must make sure they get a good return on investment.
These people are typically low-level buyers who are trying to stay within a budget. Start the negotiation by asking them what they're trying to accomplish, and then listening to their ideas for accomplishing those goals. When you have the right opportunity, tell a story about how you accomplished something similar for a past client, and then have another question loaded so they can continue talking about their situation. At some point (usually after three or four stories), you need to ask the magic question that is the key to negotiating with these clients: "So, what kind of budget are you trying to stay within?" Most of the time, they'll tell you, but only after they trust you — that's why you tell the success stories. If their budget is too low for your expectations, explain that you're a higher-level resource and ask if they would be willing to group two or three roles into one for a higher fee. If not, try to uncover another skill you have that might be valuable to them and suggest a little higher fee for the combination of skills.Third-party agencies
This group is the hardest to negotiate with, yet they're the easiest to get access to, so you might be dealing with them frequently. If this is the case, I strongly suggest you take the development of your negotiating skills very seriously. These people are trained to negotiate, and they do it all day long.
The three keys to negotiating with third-party agencies are: believing in your value, having a bottom line rate, and not wavering. I suggest you start the conversation around rates because, most of the time, they're not what you're looking for in terms of new business. Try to solicit rates from them first; but if you play ping-pong on this subject for too long, throw out a really high rate. When they say that won't work, they're almost obligated to tell you their rate range. If it's far off (which will happen frequently), just cut the negotiations short. If their response is close to your bottom line, tell them it's too low, but that you want to hear more about the requirement — it's worth at least a conversation. (Whatever you do, don't internalize rates that agencies are telling you, even if you consistently hear numbers in the same low range.)
The key things to know when negotiating with third-party agencies are: if this is for a direct client, how long the requirement has been open, and how many qualified people they have to submit. If this is a direct client with a requirement that's been open for a while, and you're the only person they have to submit, you're in a good position. You also want to know how long they've had this client. If this is a new client they're trying to impress, they'll be more inclined to concede to a lower margin, which means a higher fee for you. Emphasize your qualifications and your immediate availability, but stay strong on your bottom line rate. Suggest a rate that's equidistant from their position, on the higher side of your bottom line. For instance, if your bottom line is $100/hr, and they come in with $90/hr, ask if they can do $110/hr.
If their response is at or above your bottom line, see if they can come up $5 or $10 more per hour. Remember, $10 per hour could be another $20,000 per year in your pocket, so don't cave at the suggested rate right away.
Negotiating is uncomfortable, risky, unnerving, and absolutely necessary if you're going to succeed as an IT consultant. The consistent thread in dealing with all negotiations is having a good understanding of what's in it for the other party. Direct clients either want to get something done or want to stay within a budget; cater to that need to get the rates you need. Agencies, on the other hand, need to get the right resources placed at the highest margins as quickly as possible; make sure you pitch a deal that works for everyone.
Above all, don't be afraid to suggest something that works best for you. They just might say yes.Get weekly consulting tips in your inbox TechRepublic's IT Consultant newsletter, delivered each Monday, offers tips on how to attract customers, build your business, and increase your technical skills in order to get the job done. Automatically sign up today!
John Weathington is President and CEO of Excellent Management Systems, Inc., a management consultancy that helps executives turn chaotic information into profitable wisdom.