A $108K contract re-negotiated
I recently re-negotiated a $108,000 contract with a retainer client for a second year.
What was there to re-negotiate?
After I audited the current $108K contract I realized that my margins weren’t as healthy as I wanted.
We discovered we were only profiting about 26% from the contract, lower than my desired 35% for a contract of that size.
Yes, I paid myself out of that contract and my project manager, which is a blessing for sure.
But something was causing the margins to be less than my target.
Deliverables Were Too High
After we ran the numbers and looked at everything we delivered, I quickly realized: we delivered TOO MUCH.
We were giving the client too much.
Which on the surface seems wild because, heck, it’s a $108,000 retainer contract.
But the deliverables were consuming us and we were spending too much money on post production.
We needed to reduce the amount of deliverables without reducing the overall budget.
I had a green light from the client that they would renew at $108,000 again, which was great news. But I knew I had to go to the negotiating table on this one. We couldn’t repeat the same issue again this year.
Negotiating: Have Proof
With any negotiation, make sure you walk into the conversation with proof of what you’re asking for.
Make sure you can answer the question: “but why?”
In my case: “but why are you removing deliverables?”
I knew my client would ask why I’m reducing the amount of deliverables. It’s the most valid question.
Here’s my proof: I ran the numbers of our expenses and it revealed that it wasn’t sustainable for us to keep producing the same amount of deliverables. It was no longer a good deal for us at that rate. So if the rate couldn’t go up, then we had to go down on deliverables.
Did I say that to my client?
I sure did.
I had him consider the complexity of many of the edits we provided over the year. It revealed that we had given plenty more from our side.
Luckily, my client wants this retainer to be a win for us as well. He wants it to be fair and it looked like it hadn’t been fair for us.
Be Transparent About Costs
If a project or retainer is getting out of control, don’t shy away from being transparent about your costs.
Make sure you don’t spin it as an attack on your client. Don’t make them feel bad for where things are at.
Instead, inform them about where you’re at and speak honestly about any scope creep. Bring it to their mind and let them observe what’s going on.
A lot of clients are busy and have no clue that scope creep is even happening. They sometimes don’t know how demanding they’re being or their team (if a team is involved).
If you remain quiet and only build animosity, it will do no good when it comes to negotiation.
So choose transparency.
Anchor with True Rates
Again, several projects within the retainer had experienced scope creep and the client got the better end of the deal.
Part of my negotiation was revealing which projects went over.
One project was their annual event—I honestly realized it had gone over by about $10K. And the problem is the client didn’t quite know how much that project truly cost because it was wrapped up in the retainer.
So I took this approach: I created an estimate for what that one project would cost as a one-off.
All of a sudden he saw the cost. It was now put into perspective.
And now I had negotiating power to say we needed that project to take more of the retainer, which would reduce deliverables across the rest of the year.
I was anchoring that big project with the true rates.
It helped him understand how much we were taking on to pull it off for him and it really helped influence the rest of the retainer.
So how did everything turn out? We still got the $108,000 retainer but we slashed the deliverables by about 30.
We did that by having proof, being transparent about costs, anchoring with true rates, and revealing the value we’d provided over the course of the last contract.
Negotiation is a HUGE part of business. Don’t shy away from it. Continue to work on your negotiation skills and it will help you build a stronger business.
Cheers,
-Trent
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