1). any business will start to decline at some point, including you(rs). So cost cutting is a proven solution. You are not buying a business, you deliver a service
2). the whole point of hiring subcontractors is to reduce risk (in my opinion). You are an expert they want&get when they need, probably with some strict clauses.
3). agree that the request is pretty left-handed
Secondly, about negotiations:
Everybody likes to feel special or more exactly that they "won" something. Why not make them happy by giving them a 2-3% (negotiate) and ask for this a contact-commitment of minimum 20/30/50 hours/month. That way you also minimize your risk of looking for work.
If you do have too much work however, then you have the upper-hand in negotiations. Play it now!
I agree that businesses should always been looking at costs, but only in relation to the benefits. Just looking at costs and trying to reduce them is meaningless.
> I agree that businesses should always been looking at costs, but only in relation to the benefits. Just looking at costs and trying to reduce them is meaningless.
I know exactly what you mean and this is a very engineer kind of view... the point is, no matter how great a trip to Rome would be if your body is bleeding out right now you need to go to the ER first. A business works much the same but their "blood" is not so much money but rather liquidity and if it is in danger than they WILL have to cut costs and even in places where it hurts or where great things are done because if they didn't, they would be shut down from the outside. So just looking at costs might be vital, or it might just be some higher up trying to get a bonus. Also, liquidity on its own doesn't tell you that much about the state of a business.
Great post and that's the usual counter-attack: use this situation as an opportunity to improve your business relationship—the other party wants something, great, so counter and ask what you can get if you give him this. Easy as cream-pie
Getting tired of simple-minded self-help advice in blog form. And this bitter post even doesn't give you any advice.
When doing business you will face negotiation tactics every single day (like the OP described in his post). If you are long enough in business you know how to handle to this and how to counter attack—without having to write a whiny blog post. And if you are a talented developer you have enough options anyway.
Also tired of simpleminded gripes in the comments section about blog posts that other people have found interesting.
Your feedback amounts to "hey it happens. that's how business goes, it may suck, but learn to play the game. and if you're any good, just walk away".
Discourse is the first place to start a meaningful conversation about how to change bad/unpleasant practices. There are good clients and bad clients (I'm a client, and I'm a good one).
Patio11's comment is great because it outlines a way to engage the client in a discussion that has a better probability of leading to a mutually agreeable strategy than "just walk away".
Generally a developer walks away from an existing engagement like the one the OP talked about and partially hopes that the client will find someone worse and realize they've been punished for their behavior, but in practice, $BIG_COMPANY thinks they care about costs, are stupid about how they try to cut costs, don't know how to evaluate quality, and never realize they've been punished, so the developer just has to find new work and $BIG_COMPANY isn't worse off in any impactful way.
"you have options enough anyway" might be true, but encouraging the "f it, walk away" tactic out the gates doesn't help anyone in the long run.
A disappointed guy telling the world in his Wordpress blog that 'there is nothing to negotiate about' instead of just confronting his client? Very useful and brave btw.
Working as a contractor for clients IS the problem and not his client (which he hasn't realized, yet)—contracting isn't just the best business model to follow. Everybody who's done client work is aware of that and for those who aren't the advice should be: pursue better business models if you can
I found this blog post useful because it reminded me to keep challenging self-appointed authority. The author was upset that the client changed their prices, and decided that, no, it was up to him not them.
I found that quite inspiring as I ate my breakfast, ymmv of course.
The perspective is useful because the customer isn't always right and abusive customers should be confronted or fired. You, on the other hand, come across as an arrogant know-it-all who is offering no useful advice whatsoever.
A very valid point. My advice was not clear enough. I have updated the original post with your comment and added:
"I was certainly not trying to be whiny. This is just business after all. I was just trying to point out how a single minded focus on costs without relation to benefits helps neither the company or you as a contractor. But just to be clear, my advice is to open up the conversation from just costs to a negotiation which includes other things, including the benefits."
You fail to realize that they might very well be in a position where nothing but costs and liquidity matter, no matter how much great work you are doing there and how beneficial it might be for them in the long run. And no, this doesn't necessarily tell you anything about how they might be on a "decline". It is not uncommon to have companies declare chapter 11 despite filled order books.
Your suggestion of opening up the conversation is good but maybe you can collect some better suggestions or ideas than just basically praising your own work or product to them. Avoiding a reduction of your price but offering them some sort of cut instead is one idea.
I'm getting tired of self-righteous comments that make sweeping generalizations. I've been in the web design, Internet marketing business as a small biz owner for 7 years. My experience has been some clients are not open to negotiation. They've already crunched the numbers and came to a decision. They tell you there is a reduction in rate / of hours etc. Take it or leave it (I've done both).
Counter-attacks? Leave that for World of Warcraft.
Depending what kind of project you are doing there are enough variables to play with (price, deadline etc), however if the client wants to receive the same service for less, there are not much options; either you (or others) cut prices or they find other people to do the job. In the end, if the client keeps coming back to this reduction request, they'll push it through eventually.
A tactic we used to use (i'm from the Netherlands as well) is a) make sure you are close to the decision makers (this is always smart and we always were/are); COO/CIO/CTO/CEO depending on company size and structure b) ask your 'friend' in the top to change your 'title'; so if you are a 'developer' making E90/hour and they want to cut 5%, tell them to make you 'head developer' making E100/hour and then, via your direct chief, accept the 5% cut. Somewhere in the company are bean counters who came up with this 5% across all freelancers; they don't know/care what roles they have, so you change your role, accept the 5%, you earn more and on paper everyone is happy until the next year 5% round which you can blindly take. And I wouldn't stick around for round 3 :) But that's just me.
Former management consultant here. I worked about 1 year on a cost-reduction mission for a large industrial company. While I agree that a cost-focused business is doomed in the long run, sometimes a large company does need to review its entire costbase. Over time, this kind of companies amass useless or underused contracts that need to be cut or heavily renegotiated. This kind of analysis takes a long time so when they can't afford it they just spam all their subcontractors to see who will "yield without a fight". All of this is a very common business practice.
And there you summarize what the OP was trying to say: When the customer tries this on you, don't just agree without a 'fight'. Challenge your customer and open up the conversation about your value for them and try to come to an understanding which benefits both!
The problem at the moment is the suspicion that the economy is being used as an excuse for greedy cost cutting (by both government and business). If my client were genuinely in some sort of trouble, I would be open to helping, but most clients don't disclose accounts.
As an example, one client had the cheek to have next upgraded executive cars delivered to their offices on the same day redundancy notices went out. A day later the contractors arrived to reconfigure the car part because the new cars were a bit too wide for the existing bays.
Clients occasionally have cost issues, sometimes for reasons within your control and sometimes because someone in purchasing had the bright idea "Hey, if we email 500 people and ask for 5% off, 100 of them are going to be unsavvy enough to say 'Yes' and we just saved ourselves a million bucks a year for the price of an email."
Venting on the Internet or at the bar has its time and place, but in terms of mutually agreeable resolution for clients, let's see what we can do here:
a) Tell the client that you hear and empathize with the goal to reduce the size of your invoices.
b) Offer the client ways of achieving that goal which are a mutual win.
For example, if a client sent me something like this, I might say:
Hiya Bob,
Thanks for the email. I understand that the telecom sector is a dynamic industry and, as a result, you're concerned about making sure our relationship continues on providing provable ROI which you can demonstrate to the other stakeholders at $COMPANY. I want to help you do that.
1) My most recent invoice covered projects A, B, and C. B was very successful and resulted in an increase in customer lifetime revenue of $REALLY_BIG_NUMBER as per the calculation outlined by Dave in our email thread of March 17th. This results in an ROI to $COMPANY of $DIVISION_IS_MAGIC just based on that one component of the engagement. I look forward to continuing to find $DIVISION_IS_MAGIC and above wins for you and $COMPANY.
2) If you would like a more formal report on ROI suitable for presenting to internal stakeholders, I estimate that we can prepare one given one week's time. Would you like me to reprioritize the schedule for our next engagement to include this?
3) Given that the telecom sector is a dynamic industry, our current arrangement might not have the flexibility that $COMPANY needs to arrange your projects at the lowest possible costs. Currently, $COMPANY and I work on a time-and-materials basis for N weeks every $PERIOD. If $COMPANY would like to decrease invoiced amounts, we could:
a) Delay the delivery of D or E from $PERIOD(X) to $PERIOD(X+1), resulting in $INVOICE(X) coming in at $SUBSTANTIAL less, for a cost reduction that you can book in the current quarter.
b) $COMPANY currently purchases availability for work within $PERIOD at times mutually agreeable to $COMPANY and myself at the beginning of $PERIOD. If $COMPANY is willing to be flexible on the scheduling such that work will be delivered at any time during $PERIOD, I would be happy to grant $COMPANY a per-invoice line item discount of $DOLLAR_AMOUNT_CALCULATED_TO_BE_ROUGHLY_5%_OF_MOST_RECENT_INVOICE. (You may want to run this by Jill as her project will block if our next project does not get done as per the current schedule.)
You can continue humming bars in that direction.
If you routinely get emails like this, though, firm handshake and recommend a provider more appropriate to their needs. Anyone who does not wish to pay the price of butter has to cut down on butter consumption right now, because it is a seller's market.
the anatomy of a great comment, provide actionable advice, in an example, of how to respond.
one extension requested -- MOST contractors for $BIG_COMPANY are not in a position where they have had sufficient ownership of a project to be able to attribute specific company bottom line gains to their work.
For example, if you're in the practice of doing conversion optimization work, split testing landing pages, or doing SEO work, you might be able to measure conversion or added traffic and make claims about how that impacts the bottom line, which puts you in a MUCH stronger negotiating position.
Do you have specific advice for contractors who might be part of a team or contributing in less measurable ways (writing internal code, building a new feature)?
There are numerous ways your work may be valuable. The easiest to measure is increasing revenue, but there is improving margins (reduce cost, but keep revenue), decreasing risk, improving retention etc etc.
Always try to figure out how what you or your team are building is contributing to the companies bottom line. And when you are in a team, you are part of that.
I'd like to add that an hours_saved calculation is a great hack for building internal projects/tools. Even moreso if you are saving the time of expensive personnel.
E.g., I build a medical data entry system that is used 10x per doctor per day by the ER doctors in a hospital. There are 10 doctor-shifts each day. Each time they use my tool they save 5 minutes. My ROI calc would be 10 shifts * 10 usages per day * 5 minutes = 500 minutes of doctor time. At $200+ per hour, each day my internal tool saves $1,667 in doctor time.
"because it is a seller's market." ... sorry as a contractor who has been in the industry for 20 (!) years now I can guarantee you it is definitely not a seller's market. It is very very much a buyers market. It was bad in 1998 (around that time?) before the Euro kickstarted the industry, bad again in 2007 (I think) but this downturn has been the worst yet. I am slightly exposed to the IT / finance industry but as a general rule it is quite closely correlated to IT in general.
sorry as a contractor who has been in the industry for 20 (!) years now I can guarantee you it is definitely not a seller's market. It is very very much a buyers market.
Could you clarify this a bit further? My one-man web dev consultancy (specializing in PHP at that!) is continually on the up. I know that we're not the most expensive out there, but we're certainly towards the top. So is it that top-tier which is suffering right now, or the financial IT market, or both?
I can only talk for financial IT and I can tell you it's suffering. Budgets cut (or just not increasing) on any "interesting" projects, double dip recession (yawn) and the fact that a lot of companies are trying to hide their disastrous attempts at outsourcing / offshoring over the last 10 years (as in "Look how much money we've saved by not having local contractors now give me a bonus" and not "Holy Cow nothing gets done here anymore by that clueless consultancy I hope no one notices").
If you are doing great guns on your web dev consultancy then I am happy for you - keep it up - I'm jealous !
You're not dealing with big corporates or government. If you are, you're not doing so in a way that the budget weenies notice you.
Big orgs are consolidating, and part of that consolidation is cutting off the ability of "rogue" business units to contract with any vendor who isn't on a select list. (And the vendors on the select list are under orders to rat out rogue initiatives to corporate HQ)
Survival for small business folks stuck in this world is becoming a "partner" for IBM, Cisco/EMC/VMWare, Microsoft, HP, Deloitte, etc.
This may be the case in financial IT, (our billings from financial clients aren't suffering) but it doesn't appear to be the case anywhere else. Generic IT is pretty far down the food chain; if your business is suffering and you're a general IT consultant, I'd consider specializing your way out of that area.
There have been lots of single idea blog posts on the front page, which means they have obviously resonated with people that are on this site to the point where they upvote it.
I think that this is a good post for new entrepreneurs who may not have faced this type of thing before and get suckered in. For us more weathered business people it seems like fluff as we're used to people trying to pull dodgy moves, but hopefully this kind of post will stop the younger crew from getting burned.
The situation described is not really a negotiation at all. Of course, spamming all of your suppliers requesting a 5% price reduction is silly.
But I totally disagree with the headline. Service providers should be prepared to negotiate price and the best way to do that is to have some "asks" to balance it out.
Negotiation is a game, everybody is bluffing, just like playing poker. There are good and bad players but whatever you do (within a short term) luck matters. So you never know if avoiding a 5% cut you'll loose 100%. It's a risk that some can afford and others can't.
My inclination would be to assign an annoyance premium to that client. If they fail to come to agree to more next time, move on and find another one that you like more (even if they pay less).
"I'm always happy to work with our partners to save them money. I already offer a 10% discount for customers using our retainer plan. Would you like me to send you the paperwork for that?"
Or do like corporation style, quote 3 to 5 times the time it takes your engineers to complete the work and accept the 5% reduction after much talk on how it's breaking your balls (cartman).
Every now and then someone decides to be a douche to get attention to their blog. There is a hearty debate on HN about it but most of the time they are completely wrong. An exception is DHH with his opinionated rails talks and blogs.
Hmm so you just lost 100% of your business because of your unwillingness to negotiate over 5%. Really clever indeed. Have you ever considered the fact that they see you as replaceable (why else the 1 day deadline?).
100% of your business with that particular client - someone who, assuming that the article is accurate, comes across as either very badly organised, desperately short of money, or a bully (reduce your price by 5% by the end of today or we're dropping you). Unless I'm desparate, this doesn't sound like someone I'd want to be doing business with, and almost certainly not someone I'm going to be able to profitably increase my business with in the future.
I can now use the time that I've saved on servicing a poor client to invest in getting contracts with better ones.
> Hmm so you just lost 100% of your business because of your unwillingness to negotiate over 5%.
Yeah, looking at these numbers alone it makes sense to always agree to reduction requests from a customer. Which is why it makes more sense to look at them in a broader context. How easy it is to replace the customer with someone comparable? How annoying are those crude tactic to the contractor in question, personally?
You are a talented, experienced developer, whose work provides value to the company. That value is reflected in your costs.
If you are valuable, then you are valuable even if only contracted for an hour. Then its up to the client to ask for more hours.
If you are not valuable, you are not valuable even for an hour.
This does fall over a little if there are specific projects / actions the client wants - which is why automating the last contract so it becomes a simple function call for the next is always a good idea.
> Sending out a mail to a bunch of your subcontractors asking them to agree to a cost reduction is not only silly, but it also shows you have no clue how to run a business.
It is a mildly smart and efficient way of demonstrating brute-force against your one-man-shows and small contractors of which too many will rather swallow the 5% cut than being afraid of not getting hired again... it is communicating "take it or leave it" and makes you worry about consequences. No, this is not nice but that is exactly how a lot of those big businesses are run and you wouldn't believe some of the stories I could tell you even about big names in IT. And it is not necessarily a sign of a huge decline, it could just be one of the higher-ups trying to earn brownie buttons or sweetening their own bonus by demonstrating some sort of cost reduction.
I don't think this blog post should go on to give suggestions how a business could cut costs elsewhere but it should demonstrate tactics of how you as the developer can respond to this, whether it comes from actual necessary cost reductions or just some management whim. There are a few good ones in the comments luckily! I liked the idea of the "counter-offer" where you offer them to work 5% or 10% less at the same rate.
When it comes down to it, it is just negotiation tactics and a lot of that comes down to not even going where they want you to go and having enough experience to direct things into the right direction much beforehand so you won't even get into these "yes or no" kind of moments.
Another idea is offering them an appropriate amount of "free" service if they order that-or-that many days with you - this might seem stupid at first but think about it, you could get a guarantee for days that you might not have had otherwise and MUCH MORE IMPORTANTLY: you did not lower your price!!! This is the one thing you should definitely avoid because re-negotiation prices up is very,very hard and probably impossible, so don't even go there. Place your high rates but offer "free" days where and when appropriate; that way your price is settled and you avoid further discussions on price and you can bill them at that rate later on.
No, this is not nice but that is exactly how a lot of those big businesses are run and you wouldn't believe some of the stories I could tell you even about big names in IT.
Would you mind sharing some of these stories here or on a blog?
1). any business will start to decline at some point, including you(rs). So cost cutting is a proven solution. You are not buying a business, you deliver a service
2). the whole point of hiring subcontractors is to reduce risk (in my opinion). You are an expert they want&get when they need, probably with some strict clauses.
3). agree that the request is pretty left-handed
Secondly, about negotiations:
Everybody likes to feel special or more exactly that they "won" something. Why not make them happy by giving them a 2-3% (negotiate) and ask for this a contact-commitment of minimum 20/30/50 hours/month. That way you also minimize your risk of looking for work.
If you do have too much work however, then you have the upper-hand in negotiations. Play it now!