One of the most exciting and potentially time-draining things about starting your own professional services business is negotiating terms with your first few clients. We often go to the blueprints of what we’ve seen somewhere else in our career as a starting point, but maybe that’s not sufficient. How do you know what you need to put into a statement of work? How do you negotiate a price on services? From my experience and advising some of my own professional services clients, here are some pointers.
Divorce the Price from the Project Plan
Ultimately, you have a client that wants something done and you want to do it for money. That’s the most important discussion, so try and get that done first by going through questions like:
What’s the deliverable in what timeline you want from working with me?
What’s the expected outcome for your business?
[Given that information], our price is X. Is that agreeable?
Prepare for Negotiation
Often, clients will feel like they want to negotiate on the price to feel like they won something. A few pointers:
Rehearse the price conversation before you have it. You should have a good idea of what you’ll say to a client before you have to. So if they say “that price seems too high” you’re prepared to point to previous projects and talk about the quality of your work versus your competitors.
Inflate your initial price point. If you think it’ll take 2 weeks, say it’ll take 3 and price accordingly. I find that understanding the upside to their business from your work (e.g. $40K more in sales through e-commerce this year) will allow you to think in terms of your ‘cut’ of their expected upside business performance. Inevitably, projects will over-run, so you want to anchor your client as high as possible and negotiate from there.
Know what isn’t worth it for you. In negotiation theory, this is often called your ‘walk away point’. A friend had a client not long ago that had a customer ask him for 3x the fees in penalties if certain bad things outside of anyone’s control happened. That’s clearly not worth it. Don’t be afraid to walk away from the conversation- it will result in better terms for you, as it did for my friend.
Make the Implicit Assumptions Explicit
We often believe certain assumptions are universally understood until they’re not. It’s important that everyone understands the ground rules for the relationship:
Build a process for clear communication. This usually takes the form of “check-in” calls or meetings to review a deliverable before you move on to the next phase of the project. High-quality communication is key to a solid client relationship, so make sure that’s part of the agreement.
List the things you need from the client. Examples include: their logo for website work, their prompt feedback on your drafts, a dedicated daily point of contact, or 3 hours of their time for a strategy workshop. Also be explicit about what happens if they don’t honor their side of the agreement (i.e. project delays, increased fees, etc).
Make sure foreseeable timeline hiccups are planned. A good example isholidays that your main point-of-contact is taking. Build in buffer time that you’ll inevitably need for last minute revisions, or weeks where it’s unlikely anyone will get anything done (e.g. Christmas Week, or if your client is in France, the months of July and August).
In All Else, Be Deliberately Vague
A colleague of mine used to say “balancing the needs of the client for certainty with your need to be flexible is the art of writing a great Statement of Work”. I couldn’t agree more. Resist bureacratic-like tendencies to be explicit about your work plan so you give yourself - and your client - the room to adjust.
Convince your client the outcome is the most important thing, and the process to get there should be flexible in their interest. You’re committing to the outcome at a certain price point given assumptions about how you engage together. That’s the hard part. Secondary to that is your project plan or work process. For highly bureaucratic people, they’ll want firm commitments to certain deliverables by certain times regardless of if that helps them achieve the outcome they have or not. Try and steer those people to the outcome and not the process. The process is a means by which you achieve the ends, not the end within itself.
Be deliberately vague about when deliverables will be achieved.Instead, rely as much as possible on project check-ins and ‘review sessions’. It’s rare, given so much that’s outside of your control, that everything goes smoothly. When you have to define deliverables and deadlines, err towards the highest level definition over the broadest time horizon you can. For example, rather than saying “Front end will be delivered on 1 July”, say “We’ll deliver a v0 of the front-end for review in July”. A ‘v0’ could be literally a drawing, and ‘for review’ denotes a lack of finality.
In my experience, statements of work only become important when relationships sour. Prioritize a two-way communicative and respectful relationship with your client, build trust, and it’s unlikely the statement of work will ever be an issue. Lastly, most of the considerations on a statement of work are moot if your clients are reasonable people. We’ve all had difficult dry patches, but a spell with no clients is better than a terrible client.
Eoin Hayes spent two years as a management consultant to sales organisations, where he wrote several proposals for blue chip clients. After that he worked as part of Palantir’s Business Development team. He’s since returned to Dublin, where he set up Cantillon Labs, a firm helping European entrepreneurs scale their companies globally. This post originally appeared on Medium in May 2018.