
Why I will not negotiate with you about cost - evanderkoogh
http://erronis.nl/2012/05/25/why-i-will-not-negotiate-with-you-about-cost/
======
tdr
First off:

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!

~~~
evanderkoogh
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.

~~~
kahawe
> _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.

~~~
evanderkoogh
You are right. I was slightly oversimplifying it. Liquidity can be a problem,
but that was not likely to be the case here.

------
tferris
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.

~~~
epo
And if you're not long enough in business, this is a useful perspective.

~~~
tferris
Where is his perspective useful?

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

~~~
epo
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.

------
tluyben2
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.

------
louischatriot
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.

~~~
Turbots
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!

------
alan_cx
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.

~~~
tdr
Then that's not a partnership!

The other party just want to squeeze every drop of value before finally
disposing of you. They say it's "just business, nothing personal".

Personally, I think good partnerships are always personal.

EDIT: to be fair, this happens on both sides. This is also very damaging to
both the company and the contractors.

------
patio11
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.

~~~
ragmondo
"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.

~~~
mootothemax
_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?

~~~
ragmondo
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 !

------
djt
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.

------
pbreit
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.

------
galfarragem
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.

------
btilly
Really, leave the costs alone?

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).

------
chrisbennet
"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?"

------
antidaily
So cut your rate, but track your time more aggressively. Every email read,
every call - all billable. Be a fuckin lawyer.

~~~
Morg
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).

------
kristianp
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.

Is this guy any different?

------
melvinmt
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?).

~~~
prof_hobart
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.

------
Mordor
Better to cut your hours than cut your rate?

~~~
lifeisstillgood
Yes, always :-)

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.

------
kahawe
> _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.

~~~
aerique
_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?

