Hello and welcome back to Smart Consulting Sourcing.
I am Hélène and today we will be talking about the negotiation of consulting services. But before that, let me give you a recap of last week’s podcast.
I talked about the transformation of the management consulting market.
The consulting industry in recent years was shaped by 3 major trends, namely, digital transformation, technological disruption, and Cultural shifts within the industry due to globalization. Right now, the future holds exciting promises as well. The expertise topics offered to Clients expand and multiply even further in niche markets.
Curious to explore how the industry evolved rapidly over the past few decades? Read here.
However, this week, I wanted to talk about what to do when we have only one week to negotiate consulting services? What to do if you were not involved in the previous steps of the process? What are the cost drivers for a project?
Assuming all the previous steps of the process are fulfilled, now we are left with just the negotiating terms with the consulting firm. Things to keep under consideration now are what are the key elements of value to you? What are the parts where you can be more flexible? Cause, you’re looking for the best deal for you and so does the consulting firm so let’s see how all this can unfold in a successful way for everyone.
Where to start when you negotiate consulting services?
As in many intangible services, almost everything in a consulting proposal is on the table for negotiation. Of course, you don’t need to negotiate everything. When you decided what proposal had the best fit with your needs, you have identified parts that were good or excellent. You probably want to keep them that way.
The first step in the process is to understand how much value the project can bring you and measure the gap between the expected value and the price of your preferred proposal.
You can start by building your payoff matrix where you have two strategies: negotiating and not negotiating. The Consulting Firm in return will adopt the same strategies.
The value of the project dictates how and what you want to negotiate. Examine all the orders around the table and ensure alignment with overall strategy/priority of the project.
For example, if the expected value is 10-fold the price of the project, is it worth your time negotiating the extra 5%? Shouldn’t you focus on securing the consulting resources and the deliverables instead?
You should not see the negotiations as a way to get the most advantageous contractual terms for your company or manage your liabilities.
The practical steps to sealing a winning deal with your consulting firm
Make sure to foster the possibility of a win-win outcome. “Winning” in a negotiation does not mean the automatic fulfillment of the contractual terms or smashing the other party. It is about finding common ground that satisfies both sides.
Having said that, here are the key drivers of cost for a consulting project are the scope, the casting, and the discount.
The scope is the work to be done defined by the objectives, the deliverables, the milestones, and the timing.
Casting on the other hand is who will work on the project and how much will they work on their part.
Lastly, the discount is at the discretion of the consulting firm.
You can usually get 10-15% from any consulting firm even the very big ones and sometimes you can get even more than that as a consulting firm will be willing to make an extra effort if they have available resources and no projects in the pipeline or if they feel that there is potential for future projects. If they have availability on further projects or a frame agreement, they can also offer a discount on volume.
As I have personally worked on the negotiating terms with both the clients and the consultants, I’d like to let you guys in on a little secret about seasonality in consulting. The thing is, most of the work is done in the first 9 months of the year and firms often have availability after that.
The secret here is salaries of the staff is already paid or accrued, so any revenue id good to take. The clients can get excellent discounts during this period!
However, if you really want to reach an aggressive price reduction, you must reduce the scope and the casting and that’s where we recommend having a “design to cost approach”.
Use the classical BATNA and ZOPA
It means that instead of going from the scope to the cost, we go from the cost to the scope. In other words, we define a scope that fits in the budget. The secret here is to go back to the original scope and classify the deliverables between must-have and nice-to-have.
Now, sometimes a client would find it difficult to cut into their project scope. So this phase has to be led with tact. If you don’t mind a little bit of theory, the concepts of BATNA and ZOPA can provide a useful framework to structure your approach.
BATNA, or Best Alternative to a Negotiated Agreement, refers to the “fall-back” option, or in other words, what to do if the current negotiation results in an impasse. For example, The XYZ Co’s team has led a robust RFP process with three finalists that remitted strong proposals. In case the negotiation is stuck or ends with “no-deal,” they know that John Doe Consulting the second runner will be a reliable alternative.
On the other hand, ZOPA which is Zone Of Possible Agreement shows how much value is being created in the deal. Where you end up in the ZOPA reflects how much of the value you capture for yourself. To know more about value creation in consulting, read this article.
After short-listing the potential consulting firm to work with which is important from the BATNA point of view. You need to have an NDA agreement ready for the safe proceedings of the project. You also have to keep in mind the scope of the project just to know the differences between must-haves and nice-to-have values for the project.
And that marks the end of our podcast, folks. Next week, I’ll talk about How to fail a consulting project. So, stay tuned.
Till then, stay safe and happy sourcing!
If you have other questions about the value consulting can bring, remember you can contact me directly on LinkedIn or by email because I am always game for a chat!
Bye and see you next week! Au revoir!