Do we have to share the pain? Maintaining margin with key clients

The client’s perspective

 

I’m under pressure at the moment – pressure to reduce headcount, to provide ever more accurate and timely work for my internal clients and to cut the costs of our external advisers by 20%.

The current economic climate puts me in a strong position to deal with the last of those points, in fact I am receiving unprecedented numbers of calls from potential suppliers right now.  I would rather not change however and I have an opportunity to re-negotiate terms with many of our advisers.  Whilst I could simply go and ‘beat them up’ over fees I am conscious that now, more than ever, I need the quality to be spot on.  I learned to my cost years ago that the cheapest advice can often end up being the most expensive.

 

Having reviewed a list of those firms I would call my key advisers I decided to get them in, one at a time for a chat.  Just before I had started this process one of the firms on the list contacted me to ask if they could come and talk to me about the impact of the economy on us and to review how we could work together over the next 12 months.  I was impressed with their confident, proactive approach and agreed a meeting date.  I contacted the other firms on the list and arranged times with them – none of them seemed surprised that I had called the meeting.

I have outlined below two of those meetings, the first was with a firm I contacted (Firm A), the second was with the firm that contacted me (Firm B).  Each meeting was scheduled for an hour.

 

Meeting 1 (Firm A):

share the pain 3Firm A came along with a plan – to make sure that I knew how much good work they have done for us and to illustrate the fact that they were value for money. Nothing wrong with that approach – I might have done the same myself.  However, the problem with their approach was that they came across as somewhat defensive and seemed ‘ready for a scrap’.  By the end of the meeting we had gone backwards and forwards about the level of their fees several times before they offered me a 10% discount.  When I told them that I was looking for 20%, but assured them that level of work we put their way wouldn’t drop, they agreed.

I should have done this years ago!

Meeting 2 (Firm B):

Maintaining MarginFirm B also came along with a plan – to find out about our situation given the economic conditions and how that relates to the way we work together.  They spent the first few minutes outlining their plans for the meeting and made it clear that we would both agree the next steps (if indeed there were any) before we finish.  The bulk of the meeting was spent discussing our situation; I found their questions to be extremely insightful and thought provoking – they had obviously done their homework.  After around 40 minutes they re-capped the areas where we had the greatest challenges and we spent the next 15 minutes exploring the possibilities of how we might continue to work together but in a more efficient way.  Before the end of the meeting I agreed with their suggestion that we should reflect on our conversation and arrange a time for them to put forward solid ideas based on our discussions.

 

It looks like Firm B’s approach will have a better outcome – let’s explore the mind of the people in Firm B…

The supplier’s perspective

We have always recognised the importance of client service.  We have a key client management programme aimed at increasing the number, strength and depth of relationships with our best clients.

 

Recently we took a closer look at our client base and worked out the criteria that we felt would identify those clients that needed the most attention due to current market conditions.  The criteria we used were:

  • Profit
  • Potential
  • Risk
  • Strategic fit
  • Type of work
  • The pressure the client is under

 

Having gone through this exercise we identified six clients that we needed to approach to discuss their issues, concerns etc.  We felt it was important to be proactive and didn’t want them to come to us first. We were very careful to make sure we approached the right person / people to make sure the meetings were at the right level, in some cases it meant taking our CEO.  Each client we approached was more than willing to meet.

 

Our approach to these meetings was very much: let’s face reality and work together to see how we might get through the next 12 months.  It meant we needed to understand the wider context and not just the work we do for them.  In some cases this meant more than one meeting.  In each case we sought to understand as much as we could so that we could take that knowledge back to the office, reflect and go back with some concrete ideas.

 

We planned each meeting by focusing on these five points:

 

1. Client research

We invested time and resource in learning about each client’s world, their marketplace, competitors, clients and people.  We needed to consider the likely positions and interests of each client before our meetings and the research – both internal and external – ensured we were as well informed as possible.  Having said that we were very careful not to guess what the key issues were before each client had a chance to tell us.

 

(Positions and Interests – what do we mean?

Positions are what someone states they need to achieve from a negotiation e.g. “I want to reduce the hourly rate by 20%.”

Interests are why someone wants to achieve what they say they need.  They are the underlying reason(s) e.g. “I need to demonstrate to my divisional directors that I have maintained or improved service delivery and delivered a 20% reduction in costs.”

Mutually successful negotiation is possible because, whilst a position might stem from a number of interests, not all of them will conflict with our interests.  If we are looking to achieve WIN/WIN – and an ongoing mutually profitable relationship – we need to focus our negotiations and discussions on satisfying both sides’ interests as fully as possible, instead of getting into a destructive argument focused purely on attacking and defending each others’ positions.)

2. Inward looking research

It was vital that we conducted a rigorous and somewhat cold-hearted analysis of what we do with the client in question.  We got people involved with this stage who are not involved with the client as we find that often those with the relationships find it difficult to be completely objective.

We asked ourselves a question: Can we deliver the service to this client more cost effectively without reducing our profit OR the value the client gets from working with us?

 

3. Our positions and interests

Having gone through the exercise above with a high degree of honesty, it helped us understand clearly what our parameters are, where we might change things and what we could move on.

 

4. Our team and approach

We thought about our approach to the meeting and which people should go.  We have some excellent people but they tend to fall into the ‘cold and tough’ or ‘warm and soft’ c ategories.  We wanted to find the balance of warm AND tough.  We also knew that confidence would be key and that we shouldn’t try to make anything happen too quickly as it might be seen as being desperate – the last message we wanted to give!

 

5. Practice

It was hugely valuable to role-play these meetings. We got people to play the nasty, demanding client which allowed us to be prepared for all sorts of eventualities.  In the end none of the actual meetings were as bad!

 

Conclusion – the client’s perspective

 

Having had these meetings we are now moving forward with both suppliers:

Firm A – whilst we are very happy to get the discount we wanted we were amazed at how easy it was.  In fact, I’m a little concerned and will be watching them like a hawk to make sure the quality doesn’t drop.  I’m not thinking of putting them up for work with really demanding clients of ours – I’m not sure I could trust them to get the best deal for us.  Still, they do some good stuff for us in the more commoditised areas and I’m planning to talk to them about price again in six months!

 

Firm B – it feels like I’ve g ot a really good deal despite the fact that they pushed against a blanket 20% drop in the hourly rate.  After the initial meeting they told us they wanted to reflect and would come back to us within a week with a proposal going forward.  We were amenable to this.

 

Their solution was both innovative and creative – we are now using them for more complex projects and agreed to have more ‘commodity’ type work handled by junior (less expensive) people with an assurance that it would be overseen by someone more senior. We also have one of their people seconded to us which has been hugely valuable on the headcount issue even though we’re paying for them.  They offered to fix the fees where feasible and where it’s not they suggested a far more transparent approach to budgeting where I have much more control.  One area we are still exploring with them is if we increase the work we put their way they have suggested a degree of performance related pricing.

 

Working with Firm B is relieving a lot of my pressure,

I think we will be using them a lot more in the future…

 

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