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Have you been feeling frustrated or overwhelmed by the process? Well, we have your back. In this definitive guide, we’ll be covering everything related to how to negotiate with consultants so that your next interaction is a smooth one – no stress necessary!
With our tried-and-true tips backed up by our expertise, we’ll make sure that both parties can find success in their deal. So, get ready to learn secrets from professionals on the best tactics for successful negotiations – let’s dive in!
Mastering the Art of How to Negotiate with Consultants
Once you have your list of prospective suppliers (let’s say, one or two or maybe three potential candidates), you must now reach an agreement for the project at hand. However, prior to engaging in negotiations, you should be clear on your position:
- What do you wish to accomplish?
- What are the most important aspects of value to you?
- What are the areas where you can be flexible?
Let’s be honest, you are looking for the best deal for yourself, as is the consulting firm, so it’s essential to examine how everyone can benefit from this negotiation.
#1. Decide What You Want to Negotiate
Negotiation may not be everyone’s favorite activity and can become complex during a consulting process, but it is an essential part of ensuring that you are completely satisfied with the proposal.
Identifying the strengths and weaknesses of a given proposal is key to having a successful negotiation. Focusing specifically on the three main dimensions: what will be delivered, how it will be delivered, and the cost, helps you distill all aspects into something more manageable.
You should focus on these three attributes while negotiating instead of tireless debates over minute details. You can then be rest assured that you have achieved your desired outcome and taken full advantage of any available flexibility in the proposal.
#A. What Will the Consultants Deliver?
Writing a Request for Proposal (RFP) and crafting a response to it requires careful analysis and coordination. As the RFP serves to define the project in terms of scope and deliverables, it can be challenging to balance being accurate but also making sure all necessary information is included.
Miscommunications or misunderstandings about the project are common, leading to confusion or even opening a door for discrepancies throughout the rest of the proposal.
Furthermore, since collaborating with consultants may uncover better ways of describing your needs, the scope may very well evolve from earlier descriptions during negotiations.
In any case, defining a clear picture of the project in an RFP will set expectations for both sides involved and bring mutual clarity that so often pays dividends later on in successful collaborations.
#B. How Will the Consultants Deliver?
The delivery model for a consulting project is an essential component of the project’s success. How the project is approached, when timeline and milestones are met, who is accountable for key governance decisions and on what scale, who should be part of the team, what will be done on-site or off-site – all this matters greatly when aiming for a successful outcome.
It can also make or break morale within the project team. As such, putting together a delivery model that takes into account all of these factors while responding to the specifics of the project is paramount to staying on track and making sure everyone’s expectations are being met.
#C. How Much Will the Project Cost?
The price of a project is a key factor in any decision-making, and there are different ways to approach this. It is important to analyze the overall cost plus how it will affect your budget, but also the daily rates, fee types and the cost structure across each phase of the project should all be considered.
An awareness of how much is being paid for each activity or stage will let you make more informed decisions on what needs resources and what could perhaps be streamlined. Understanding the financial impact at all levels will let you gain the best value from your project investment.
To be noted: Of course, all of these three dimensions are connected. If you change the scope, it will change how the project is delivered and how much it costs. In the same way, changes to the project’s timeline or staffing will change both the scope and the cost.
#2. Keep in Mind Your Payoff Matrix
When it comes to project negotiation, it’s important to look up instead of down – or rather, look at the bigger picture instead of fixating on the people involved in the project. Yes, relationships are part of any successful project but it’s your interest and payoff matrix that really matters to get the desired outcome.
Do not lose sight of the value that this particular project has for your organization and examine all the orders around the table to make sure that it is in line with your overall strategy and priorities. By viewing the project from a strategic perspective you’ll likely be able to find significant value from an agreement which would otherwise have been missed.
Thus, the first phase in the process is to determine how much value the project can provide and the price differential between your preferred bid and the expected value.
You can begin by constructing a payoff matrix with two possible strategies: negotiating and not negotiating. In response, the consulting firm will adopt the same strategies.
Let’s apply this to a project whose value to the client is 100. The consultant has estimated a cost of 50 for the undertaking. When no party negotiates, both parties receive a value of 50.
Payoff Matrix Example 1
Since the other side expects you to bargain, it is always in your best interest to do so. However, the amount of discount you anticipated cannot be determined by a general X% criterion, but rather by the project environment.
Payoff Matrix Example 2
When compared to the first week, you always come out on the losing end. Also, if the estimated value of the project is 10 times its cost, is it worthwhile to negotiate an additional 5%? Shouldn’t you instead concentrate on securing the consulting resources and deliverables?
Effective negotiations should be approached not as a way to maximize profit or diminish responsibility, but to reach an agreement that fulfills both parties’ goals; the aim of a successful negotiation should be a ‘win-win’.
Finding common ground on the terms of an agreement does not necessarily have to come at the expense of the other party; rather, financial expectations may be weighed against desired outcomes in order to establish a satisfactory contract for all.
Keeping an eye on ROI is important too – whilst making sure to keep within budget – so avoid getting caught up solely in trying to win every line item and compromise where necessary for the overall success of your project and relationship with the consulting firm.
#3. Assess the Balance of Powers
When it comes to negotiations, it pays to really understand the strength of both sides so that you can conduct an effective negotiation. By having a sense of the potential margin for negotiation, you can effectively decide if you have the upper hand or not in the talks.
To make sure your negotiations are successful, determine which side has more leverage and use that knowledge to gain the best possible outcome for yourself or your company. Understanding each side’s strengths is essential in making sure you get what you want, need, or deserve from a negotiation.
#A. What Is Your Level of Dependency on The Selected Provider?
When you have organized a competition for a relevant project or initiative, you will be able to choose from multiple solid proposals. While expertise in the field may limit the number of qualified consulting firms you have to work with, it is still beneficial to have a broader range of options available.
If negotiations with your preferred choice don’t lead to a satisfactory agreement, then having viable alternatives makes it easier for you to proceed without compromising on quality and other objectives.
#B. What Do You Know About Pricing?
Price intelligence information is another interesting outcome of a relevant competition. When several consulting firms of comparable size and reputation offer significant price differences, the consulting firm with the significantly higher bid may be in one of the following situations:
- They overestimated how much work is needed to be done.
- They don’t care about the project. The high price is a nice way for them to say that they can’t do the project.
- Your company tends to always work with the incumbent, so they know they will get the job even if their bid is higher.
- The other companies are offering a huge discount to get the project
#C. Are You Willing to Get Your Incumbent on Their Toes?
Having the flexibility to work with different players can be key in negotiating a successful outcome. It signals to your incumbent that you are open-minded and willing to consider different paths. Being able to demonstrate this willingness not only increases their trust in you, it also gives them greater assurance that an agreement can be reached.
Ultimately, by demonstrating a readiness to collaborate with new players, you create the conditions for a more balanced negotiation and once both parties find a common ground, better results will follow.
#D. Are You in a Hurry?
When there’s an extremely tight timeframe for a project, the situation quickly becomes challenging. This is because the lesser lead time you have, the less bargaining power you have when working out details of the project.
Accordingly, it is highly recommended to give yourself as much advance notice about upcoming projects as possible. If available, having a period of time between when you know something is coming and when work officially begins allows for ample preparation and can help to avoid feeling rushed or pressured during negotiations.
#E. Can You Take Advantage of The Industry Seasonality?
Consulting is undoubtedly an industry with seasons of opportunity. During the last few months of the year, for example, consultants find themselves with more capacity and therefore are often more open to negotiating extra effort on a project.
On the other hand, come early January consultants tend to be busier, their services are in higher demand due to the start of a new year – where businesses’ planning and strategizing comes into force.
Therefore, it is important to think ahead and make the most out of consultancy services throughout the year, depending on when particular projects may need more attention or expertise.
#4. Decide Who Will Negotiate
When deciding who should negotiate the deal or agreement, its essential to follow these essential steps.
#A. Team-based or Individual Approach
The choice between a team-based or individual approach to decision-making depends on several factors. Before committing to either option, it’s essential to evaluate the necessary workload and resources each will require.
With a team approach, it’s also important to ensure that the correct level of expertise is represented for the project success. Careful allocation of roles and responsibilities can prevent potential pitfalls down the line and make tackling complex tasks much easier.
#B. Right Team Composition
Having the right team composition for a negotiation is essential to ensure that the project runs smoothly. Team members should include the same persons who helped prepare the Request for Proposal (RFP), such as the procurement leader, project manager, and project sponsor; this setup could be expanded further if it’s a larger or more strategic project, with the addition of core stakeholders and representatives.
#C. Have An Experienced Leader on Board
As different projects can vary in size and importance, an experienced leader who understands the organization’s dynamics and objectives should be able to carefully assess which personnel are best suited for any given negotiating team.
#D. Bring in Another Individual
No doubt, negotiations are a complicated process and when both partners have excellent relationships, it is important to remember the distinction between their personal feelings and the negotiating itself.
Bringing a third party to the table can offer a new perspective as well some insights, ensuring that objectives are met without letting emotions get involved. It also helps to make sure no party walks away feeling taken advantage of, which is essential for successful negotiations.
In this case, though you may feel comfortable with your partner at a personal level, it is important that you remain professional in order to get the best agreement out of your negotiation.
#E. Do Your Research Well
As part of the preparation process prior to negotiations, it is essential to take the time to research and get to know the consulting firm better. If you have had previous interactions with them, reviewing past notes could help to refresh your understanding of their interests and expectations.
Additionally, when constructing tactics for the negotiation itself, consider who will be opening discussions and who should act as an escalation point if needed. Furthermore, planning for potential concessions carefully will be paramount – assessing factors such as pricing and quality can give invaluable insights into how best to negotiate without compromising chances of success.
Thinking through possible reactions from your counterparties will also prove beneficial in terms of deciding how best to engage in the discussions.
#F. Know Who Has the Authority
Last but not least, when it comes to decision-making, understanding who has the authority is key for a successful outcome. It’s important that both sides of the agreement are aligned before entering into an agreement, as the consequences of misunderstandings can be very costly.
Nothing is more frustrating than coming to an agreement only to have it rejected or altered by another person, who was not involved in the original discussions. To avoid this unpleasant scenario, it’s wise to do your homework and clarify any miscommunications as you go.
If you still find yourself unsure – don’t hesitate to ask for clarity or request a break to confer with other stakeholders if necessary.
Tips To Better Negotiate Consulting Agreements
While there is no one-size-fits-all formula for success when stepping into the negotiation arena, a proven textbook approach can give you an edge. BATNA and ZOPA are two concepts that provide a reliable structure to any complex negotiation.
#1. Assess Your BATNA
BATNA, or Best Alternative to a Negotiated Agreement, is a key concept for every negotiator to be aware of. Before entering any negotiation process, it is important to consider the available alternatives that could be pursued should an agreement not be reached.
This means taking stock of resources and understanding what course of action would result in the highest expected value if no settlement occurs. Then you can use the BATNA as the foundation used to drive negotiations and ensure each side gets what they want out of the process.
Having a clear understanding of all options allows negotiators to stay informed and maintain leverage throughout any situation – making BATNA an invaluable tool that streamlines negotiation processes and creates mutually beneficial outcomes.
Moreover, determining a reservation value is the crucial first step when negotiating. By understanding the lowest-valued deal you are willing to accept, you are better prepared to determine your next move.
If the offer is lower than your reservation value, then you have an alternative route to choose – pursing a BATNA. On the other hand, should the final proposal be higher than your set reservation value, you have got yourself a good deal and it would make sense to accept.
Of course, this process requires information accumulation and comparative analysis. With your reservation value in mind though, negotiating can become a less daunting task and even more exciting process as you now know what kind of deals are suitable for you.
#2. Look For A ZOPA
When crafting a deal with any other entity, it’s important to always remember that they have their own BATNA as well. Oftentimes, parties can get so caught up in the details of things like deadlines and dollar amounts that they forget the most essential factor: a value-creating Zone of Possible Agreement (ZOPA).
After all, ZOPA is what demonstrates how much value is being shared between both parties and indicates just how much each of them stands to gain or lose; your placement in the ZOPA determines at what end of this spectrum you’re going to land. As such, paying attention to the ZOPA can serve as a guide for forging better deals for both sides.
#3. Trade-off Between Scope and Budget
Identifying your options and understanding the best trade-off between time, cost, and quality is an essential part of any project. Evaluating your priorities will help you recognize which elements are integral to the project’s success and which are more superficial.
From there, you can start to contrast and compare scope against pricing. You may be willing to increase the fee slightly in order to obtain a higher quality final outcome, or alternatively reduce the scope slightly in order to fit within budget. By understanding both sides of the equation, you can determine how to find a balance through compromise that works for everybody involved.
Moreover, when scoping out a project, it is important to prioritize the most crucial aspects before considering your budget and value. Get a detailed view of the necessary components and options before making any financial commitments.
During this process, it is essential to consider the size of the project, analyze the risks associated with each element and carefully consider all available resources in order to make an informed decision towards selecting the best combination of scope plus price.
Consulting firms often offer discounts on their fees of up to 10-15% simply as a sign of appreciation or courtesy, without any trade-offs required. In addition, some firms are now presenting prices with a pre-confirmed discount included in the original fee quote.
If that is not the case, then it never hurts to negotiate and push for a further discount if you feel it is necessary. When considering scope and fee, think of them as two sides of a balancing act: if you want to reduce fees, then reducing the scope of services provided will be necessary, and vice versa.
Ultimately, this negotiation between scope and fee is a natural part of working with consulting firms so don’t hesitate to strive for the best possible outcome for your particular situation.
#4. Take a Look at Other Savings Opportunities
When you manage multiple consulting projects per month, you learn how to decipher a proposal and identify savings opportunities.
#A. Travel Expenses
When pricing a consulting project, there are a variety of factors to consider — none more so than the amount of travel and associated expenses that must be covered for completion on time and on budget.
Indeed, many consultants typically include travel & expenses as an additional cost in their proposals. That said, others may opt to remit an all-inclusive price which includes such costs built into the total.
Of course, when it’s known there will be minimal or no travel involved at all then it might be wise to exclude these from the proposal and charge them separately instead.
At the same time, any such expenses should always fall under a set Travel Policy, with any large sum subject to upfront validation beforehand.
Consulting firms can add 5-10% to the SG&A expenses in their proposal, which covers several overhead items like office supplies and telephones.
While this is a great benchmark for pricing negotiations or a simple way to land 5% savings right off the bat and make the procurement team happy, it’s important to not just accept this category as is.
Dig into what it covers and don’t be afraid to challenge elements that are included that you feel don’t need to be – after all, this is your precious budget!
#C. Experts on the Proposal
Planning is key to any successful project, and that means ensuring you appoint all the right experts. Take a step back and analyze the proposal; ask yourself if all the expert resources are necessary or if they can be cut down to a lower level while still delivering an effective solution.
The savings may not be huge but little ways of budgeting more judiciously can add up to 10%, setting you on the path to success. So, take a good look at your financials, put together a plan and make sure you stay on top of it for long-term returns.
#D. Ramp-up or Ramp-down
When it comes to proposals, it’s not unusual for teams to begin with a fully loaded roster from the first day. However, reality is that this isn’t always possible due to data gaps or external prerequisites requiring prep such as organization of cross-team meetings.
The same logic applies for the project conclusion; smart optimization of the ramp-up and ramp-down process can bring considerable savings both in terms of time and money invested.
Crafting a strategy that pivots around personnel management is an effective way to ensure maximum efficiency throughout the duration of any proposal or project.
#E. External Expenses
Taking the charges for external expenses such as market research and expert interviews into your own hands can be beneficial when proposing business deals with consultants.
If you have ever wondered why some consulting firms tend to mark certain costs up, it is because these companies may not always have access to the same rate or resources that larger organizations do. It is worth exploring your negotiation options if you are representing a large company.
Doing so can help you save money on research costs, as well as work with competitors in securing better deals outside of whatever the consultants are offering. This way, you’ll know that you’re getting a fair price on any external fees associated with the proposal.
Takeaways for Busy Executives
- Do your Homework Right Prior to the Negotiation – There are several things to prepare before starting the negotiations. You need to gather the right team, define your objectives and understand the room for maneuver. Last, you’ll have to design your strategy and the range of deals acceptable to you.
- Focus on the Overall Value of the Project, Not Just the Price – Just like every consultant has a different set of skills, every proposal describes a slightly different project. Rather than the price, you should look at both the expected results and the price, or in other words, the value for money to make your decision.
- Negotiate the Key Elements of the Project – The proposal is a balance between granularity of the scope and deliverables, depth of expertise of the consultants and length of the project. Any change to these parameters will impact both the price and the outcome. Your negotiation has to embrace all the dimensions of the proposals to secure the right deal.
- Find Other Savings Opportunities in the Nuts and Bolts – Once you have secured the key elements, you can scrape more savings looking at the details of the proposals such as the travel expenses, or the ramp in/ramp out.
When you’re negotiating with a consulting firm, it’s important to make sure that everyone comes out feeling like they’ve won. You want to strike a deal that works for both sides, right? But if you’re someone who’d rather leave the complicated stuff to the experts, that’s where we come in.
We can help you with the whole consulting sourcing process, beginning with the initial negotiation. We’ll talk to your shortlisted firms and make sure you get the best deal possible. From nailing down the deliverables to figuring out pricing and negotiating the terms, we’ve got you covered. Our goal is to help you secure a successful outcome that everyone can be happy with.
So don’t hesitate to get in touch with us. We’re here to help you navigate the world of consulting and find the right fit for your needs.