When I started in business I had no idea what "leverage" was, let alone how to use it. The prospect of negotiating a fee for my work terrified me, which is probably why I became a designer. I thought that because 'I wase talendt', I'd get work without the need to negotiate.
When I was about 22, I had the opportunity to illustrate an industrial machine for Nicholson Manufacturing. My manager at the Boeing design group referred the project to me.
When I visited Nicholson, the engineers had already spread out elevations of the machine, and didn't ask to review my portfolio. I knew instinctively that I had the job. So, I started the meeting by asking them questions about the machine - why they needed the illustration and how it was to be used. At the end of the discussion I boldly asked for $1000 - the fee that top illustrators were paid for a one-off piece. They agreed without blinking an eye.
Expertise as Leverage
I'd stumbled onto the most basic form of leverage: expertise. Because I had been referred by a respected professional, I was recognized as an expert. And, by asking questions that focused on their needs, I reinforced my expertise. When a prospect believes in your expertise, you have the leverage to control the situation and the price.
The single most important leverage any design firm has is expertise. All design firms are different. Our clients may try to commodify us with RFIs, RFPs, RFQs and procurement processes, but we are still individually unique. Each of us has our own mix of history, skills and experience. A client can only get the unique skills you provide from you. That is your expertise leverage.
Sadly, I see creative firms give up their expertise leverage every day. Here's a classic. My client, Tim, had the opportunity to redesign one of the great American brands. It hadn't been updated for years, and the company needed to present a revitalized brand at an upcoming event.
Tim was chosen because of his packaging expertise. While not known as a brand design house, his firm's packaging skills overlapped nicely into branding. He was desperate for this job, because brand design has more status than packaging design, and this assignment could launch his firm into that heady, highly profitable world.
Tim's leverage is spectacular. His is the only firm being considered. His skill set is a perfect match. He is the perceived expert, and, better yet, the client has only three months until the unveiling of the new brand. There's no time to source a new design firm.
Tim presents his fee proposal. His direct client approves it and they begin work. At the next meeting, while discussing the results of the discovery phase, his client mentions that purchasing has questions, and will be calling.
Enter Mr. Procurement
Procurement calls from his car, apologizes for not being there and mentions that he has been extremely important to the company's turnaround by streamlining divisions and vendors globally (A classic power play).
"We can't wait to see your solutions. We are thrilled to have you on our team. Hitting a home run on this will launch your firm into big time branding. But, there are a couple of things we must address before I sign your purchase order...." (Another textbook power play.)
You can guess what happens next. Purchasing policy requires a 20% discount on fees over $300k, and payment 180 days after completion. My client agrees. NO!
What did he do wrong: Tim was vulnerable. He needs this job. He's already got his whole team going full-speed. He is confused by these new conditions, and afraid of losing the work. He forgets that he has both the leverage of his expertise, and time on his side. There is no way they can meet their deadline without him, yet he accepts the terms.
What should he have done? 1) Refused to negotiate over the phone. 2) Explained the deadline and the scope of work required. 3) Asked for a significant advance, because their terms indicated payment issues.
He should have behaved in a manner that reinforced his position as the expert. Experts define their own terms. They listen carefully to their clients' requests, ask questions and set the direction based on their expertise.
Understanding leverage and negotiation are critical skills needed for success. The good news is that they can be learned.