Four steps to negotiating higher fees

Follow these four steps by Scott Love to negotiating higher fees and higher margins.

About six months ago, I was marketing a senior vice president of business development who was one of the top producers in his industry. He had personally brought in several hundred million dollars of business last year, and was making a move because of some leadership issues in the boardroom. He was a hot prospect who would make millions of dollars in net profits for his next employer.

I found a possible company who was interested in him. I called the CEO, explained the candidate’s background and motive to move, and the CEO seemed very interested in meeting with the candidate.

Time for the fee. Inhale. Hold breath. Pause for four counts. Exhale. Relax. Okay, now go. I said, “The way our fee structure works, Bob, is that if you hire this candidate, my fee is thirty percent of his first year guaranteed compensation. And if you’re okay with that, I’ll email his information to you and follow up with you tomorrow to set up a meeting between the two of you.”

“Thirty percent? … Ouch!” he said with a dramatic groan in his voice. “I can’t believe you’re charging thirty percent when everyone else I am dealing with is charging twenty or twenty-five percent!”

Inhale. Hold breath. Get ticked off. Pause for four counts. Feel anxiety. Exhale. Relax.

Yikes, I thought. Was he bluffing, or did he really have a problem with the fee? At that point, I had two options. I could capitulate to his response, or I could sell value.

I followed these four steps to diffuse his objection and got him to agree to the full fee:

Build the relationship and trust through rapport.

First, I solidified the relationship between the two of us by creating rapport. I did this by using humor.

“Bob, it sounds like you just gave me the famous old ‘flinch”, I responded. I was referring to the legendary flinch technique that I first read about in Roger Dawson’s book Power Negotiating. Pause. Listen. My client sort of chuckled. Yes, he had been caught. He was a very sophisticated and shrewd executive, and one whose sterling reputation in the community was legendary. He knew I caught him in a gambit of negotiating. By calling him on it, I was building rapport. I diffused the tension and solidified the relationship.

Take your eyes off of your needs and focus on what you can give to the other person.

I listened to his concern with my fee.

“Scott, honestly, why is it that you can charge me such a high fee when you and I both know there are recruiters charging half of that amount right now?”

“That’s a good question, Bob. I would be asking the same thing if I were in your shoes.” Empathy. Listen and empathize from the heart.

Do not apologize for high fees. Be proud of them.

I made my high fee the exact reason why he should do business with me. In other words, I did NOT apologize for the high fee. I did not capitulate to his request. Instead, I was proud of the fee. I was proud of the fact that I could give him so much value and I focused on his personal and professional benefit of the placement.

“Bob,” I continued, “it’s very simple. You get what you pay for. I would be doing you a disservice if I charged you any less than a full fee, and that’s because of this very simple truth: you get what you pay for. You know it, your clients know it, and I know it. And instead of discounting my fee and bringing you discounted and substandard candidates, I would rather keep my fees high and bring you people that are actually worth a full fee. You and I both know that the difference between a twenty-five percent and a thirty percent fee is seventeen percent of the fee, which on a thirty thousand dollar fee would be just over $5,000. Is it worth jeopardizing the quality of your company to save a few bucks for an inferior candidate? Full fee candidates can bring you a value greater than that small delta between the two.”

Maintain fee integrity.

I was willing to walk away from the deal.

If he said no, I was willing to lose the potential placement because I was looking at a list on my desk of thirty other companies who were next. I could afford to lose it. My cash flow and deal flow was solid. And it came through in my voice to my client.

And my client agreed to the full fee and met with the candidate two days later.

Recently a prospective participant for my consulting and mentorship program asked me if he should pursue high level retained search on his desk right now. After seeing that he didn’t have enough potential deal flow, my advice was to continue doing mid level contingency search, good search work that he could close quickly and get paid on quickly. He wouldn’t have the ability to walk away from deals that didn’t maximize his time. He didn’t have the deal flow and cash flow necessary to be a strong negotiator.

Cash flow is king. Check your ego at the door when it comes to success in this business. Cash flow is more important than your model of search, and cash flow is also more important than fee integrity. If you can’t keep your doors open, then you can’t keep your doors open. Get enough deal flow going before you do anything close to raising your fees or changing your model or getting to the next level in search. This business is intensely competitive, and you must compete with a full stomach…otherwise you seem hungry and you won’t be negotiating from a position of strength.

Follow these four steps to negotiating higher fees and higher margins. And by all means, quit watching television at night and start investing in your own success through reading, and start with Roger Dawson’s book on negotiating. His book has given me the bulk of what I built my desk on with respect to fee negotiation.

Here’s another idea: call the cable company tomorrow to disconnect your cable service (yes, there is life without Larry King) and put that fifty bucks a month and that extra few hours a week into books that can help you win more business. Quit drinking sodas or Starbucks and put that two or three dollar a day habit into your personal training budget. Start investing in books that can help you get to the next level. You can’t become a big biller if you don’t have the education to do it, so start acquiring it. You owe it to yourself, and you owe it to our industry to win, and to win greatly. This industry needs sharp aggressive recruiters who can keep their margins high, their fees healthy and do it with clients who eagerly see the value of what you do.