Negotiate win/win agreements with clients

By Larry Melillo

Before you initiate a project with your client, pay close attention to the process of building the contractual agreement. This process is often considered a legal matter, because negotiating a strong client/consultant agreement helps the consultant limit risk. But if you think that the client/consultant agreement is best left completely to lawyers, think again.

Involving key stakeholders in the development of a client/consultant agreement, specifically an initial agreement, provides the following benefits:

  • Clarification of the goals of the client/consultant relationship
  • Less chance of surprises after the work begins
  • Creation of communication channels to resolve issues as they arise

You can negotiate winning client/consultant agreements that protect you from risk while ensuring that you and your client continue to reap benefits after the contract becomes a day-to-day reality. Because many service contracts last over a period of years, an effective working agreement is imperative to sustaining a healthy, long-lasting client relationship.

Best practices for negotiating winning agreements

You can incorporate a number of best practices into your client negotiation process:

  • Understand why the client is buying your services     Don't assume that you were chosen only because you offered the best price. Clients purchase consulting services for many reasons, and clients often choose a consultant whom they trust to execute the needed work. The negotiation process should work to enhance that trust.
  • Look for opportunities for both sides to win     As you work through the negotiation process, define the issues that are particularly important to your client and those that are critical for you. Openly discussing these issues will help your working relationship and will aid the negotiation process.
  • Plan your approach to negotiations     Know what you require from the client/consultant agreement. Your needs can be based on quantitative goals, such as profit or revenue, and on qualitative goals, such as having a prestigious client or one who will help to promote a new service offering.
  • Don't automatically concede to every concession request     Conceding quickly to a client's requested concessions signals that you are not an equal partner in the relationship. Don't be afraid to say no to requests if the issues are critical for you. As a consultant, you deserve the opportunity to have a profitable relationship with your clients.

Negotiation terms

Client/consultant negotiations typically include two sets of terms:

  • Standard business terms     These terms include goals, fees, expenses, resources, and timeline. These business terms define what you are trying to achieve with your client.
  • Terms and conditions (Ts and Cs)     These legal terms guide the client/consultant relationship and attempt to reduce risk on both sides. Examples of Ts and Cs include issue resolution, client expectations, and acceptance criteria.

A winning negotiation process

Standard business terms capture the heart of the deal, and negotiation of these terms is typically straightforward. Negotiating Ts and Cs may become problematic, often due to misunderstandings between legal teams and stakeholders. Follow this framework to eliminate misunderstandings and negotiate a win/win agreement:

  1. Notify the legal team     Notify your legal team of a pending contract review before the signing occurs. This advance notice will give the legal team an opportunity to assign resources and schedule the negotiation sessions. In addition, the advance notice will give you an opportunity to review with the legal team the key points of the relationship, including standard business terms, exceptions to the standard contract, goals of the relationship, and length of the relationship.
  2. Send standard Ts and Cs to the client's legal team as soon as possible     When you believe an agreement with your client is imminent, ask for permission to send your Ts and Cs to your client's legal team. By taking this step, you can begin legal negotiations using your terms, not your client's. And sending Ts and Cs early helps your client's legal team get a head start on the legal review process, so bottlenecks are less likely.
  3. Prepare for the negotiation kickoff meeting     After the handshake signifying an initial agreement between you and your client, begin planning for the negotiation kickoff meeting. Key items to include in your plan are:
    • Best-case terms     Identify those terms that cover your expectations for revenue, profit, contract length, expense reimbursement, and client participation.
    • Worst-case terms     Identify the worst terms you can live with and still have a workable client agreement.
    • Client goals     Make sure that you can articulate what the client wants to achieve. Your client's goals should not conflict with your worst-case terms. For instance, if your client has an inflexible price point and if you know that you can't profitably manage the project at that price point, you need to deal with this serious issue immediately. Unless you can reach a workable solution, it may be better to walk away from the project.
  4. Host the negotiation kickoff meeting     Invite the key business and legal sponsors to this meeting so that all parties are in contact. If possible, prepare an opening statement that sets a positive tone for the meeting. Create a joint agenda that includes:
    • Introductions.
    • Recap of the joint objectives of the project. Specifically, focus on the project timeline, including determining a date for a final agreement.
    • Discussion of standard business terms.
    • Discussion of Ts and Cs.
    • Conclusion that includes a recap of key points.
  5. Create a negotiation schedule     When you and your client have determined the date for the final agreement, work backward from that date to create a negotiation schedule.

Negotiation tips

During negotiation meetings, keep a few key points in mind:

  • Be flexible     Be open to new terms and changing client objectives.
  • Be creative     Generally follow standard practices, but don't be afraid to look for different ways of doing business that might benefit both you and your client.
  • Listen and reflect before reacting     When a client requests concessions, take time outside of the negotiation meeting to evaluate the requests. You'll be better able to determine whether the requests help or hinder the overall spirit of the client relationship.
  • Continue the partnership mentality     Throughout the negotiation meetings, keep in mind that you are dealing with a partner, not an adversary. It's particularly important to keep this perspective when dealing with the client's legal team.

Consulting companies need to use a formal process for negotiating win/win client agreements. This process should begin before legal negotiations start so that each side clearly understands the needs of the other. Following a negotiation process protects your interests and those of your client. A formal process also helps eliminate surprises downstream that may sour an otherwise promising client relationship.

About the author     Larry Melillo is a manager of CFO Advisory Services at KPMG, a leading provider of audit, tax, and advisory services. CFO Advisory Services professionals help organizations implement strategies and process changes that drive a more value-added finance function.

Applies to:
Project 2003