Negotiating fees: know your worth

Ask most partners or fee-earners what scares them most and the answer is likely to be negotiating fees. In today’s climate, clients can flex their financial muscles and the pressure to negotiate is high.

Don’t assume you have to negotiate
If the client says: “Your fees are too expensive”, what exactly are they saying? Most fee resistance comes from scepticism about the value clients perceive they are getting. Your first response to any challenge on fees should therefore be to demonstrate the value of your service, highlighting wherever possible the positive factors in your proposal compared with their alternative.

Clients buy on value; professionals tend to sell on price often because they lack confidence in their true value to a client. Be ready to reinforce the value of your proposal before resorting to price concessions.

Know what you are negotiating about and make a plan
Legal services are high-value services and clients do not just buy on price. A client has a range of needs and it is your understanding of the full range of those needs that enables you to build value and reduce price concerns. As well as technical capability and payment terms, clients look for other factors such as training, sector experience and technical back-up.

Know when to negotiate
Lawyers often avoid negotiating or do it too early, before the selling phase is finished. This phase is about identifying client needs, developing a solution to satisfy them and agreeing with the client that what you propose meets its requirements. Negotiating is agreeing the terms of how you will do business, including the fee, and comes once selling is finished. If you separate negotiating from selling you will have a full understanding of your client’s needs and be able to demonstrate your value before you even talk about fees. Resist clients’ attempts to talk money before you have established what they want and have demonstrated your value.

Know how to negotiate
Successful negotiators trade more and concede less. Where possible, exchange concessions. Every time you give to the client it costs you, so for everything you give you must have something in return. Maintain the deal’s value by balancing costs and value via the trading process. Remember: the more you give away, the more you will be asked to give.

Be creative in your pricing strategies
You will negotiate better fees which are more attractive for the client and profitable for you if you can move away from focusing primarily on hourly rates.

Clients are now demanding a degree of cost certainty and fixed fees are becoming the way forward in many cases. You need to show imaginative ways of charging by being prepared to share some of the risk at the front end, taking on some of the risk of the transaction or combining risk and reward – firms generally want all the reward and none of the risk. Contingency fees, balloon payments at the end of transactions against agreed quality measures and volume discounts are all being offered to clients as more attractive ways to structure fees. But remember: if you are prepared to offer volume discounts, you need guarantees of work in return with an agreement to pay it retrospectively.

Kate Fleming is a director of Ridley Fleming, specialising in management and business development training for professional firms