What to do when negotiating as a freelancer
According to a recent Upwork report, one third of US residents that are able to work are doing so by performing freelance jobs. This equates to roughly 57 million people out of a workforce of about 160 million. This figure has gone up by about 4 million, or 13 percent in the last five years.
Those who have chosen to go into the freelance business model must not only be experts in the services they provide, but also be able to juggle negotiations, finance management, self-branding and marketing. Balancing these aspects, let alone performing them well, can be tough for independent contractors, especially when it comes to negotiations. But when failing to properly make a deal with a potential client, freelancers have to face consequences ranging from losing the deal, to wasting precious time or even hindering their reputation.
Andres Lares, the Managing Partner of the Shapiro Negotiations institute, points out three key areas that usually sway freelancers from landing a good deal throughout their freelance career. The first misstep a freelancer can make is to concentrate on the business aspect of the deal as opposed to coming to an understanding with their client. This can often lead directly into the second mistake, and that is to “give a better deal” than their competition, and provide a lower rate or price for their services. Avoiding the third mistake can actually help avoid the first two, and that is wasting time negotiating with the wrong prospective client. The aforementioned missteps can be broken down as follows:
Build a relationship, not just a technical specification
Honest, authentic connections are bound to lead to repeat business. People tend to come back to what is familiar, what they “know”. According to Six Seconds, a non-profit organization dedicated to the awareness of "emotional intelligence", familiarity is the foundation for trust on a chemical and physiological level in the brain. Knowing and understanding this principle is doubly important for freelance workers, due to the fact that repeat business puts food on their table. In a company-employed environment, forming a solid relationship may not be such an important a factor, nor will it affect the overall outcome of the deal as much, due to the fact that shareholders’ or a CEO’s expectations curb any wild fluctuations. But the relationship that is formed by a freelancer and his potential partner may be what seals the deal, or if the client is not interested in building one, what breaks it.
When entering a negotiation, says Lares, it is important for the freelancer, to “build the relationship as the reflection of your own brand and values. Do this by telling your own story, describing your unique qualifications and abilities, and finding common ground to build connections.”
Once a solid relationship is made, the negotiations aren’t over
As opposed to a global conglomerate, a freelancer isn’t always free to hand out discounts to every new client. If a giant corporation can take a loss and compensate for it with other avenues of business, or after some time has passed, the freelancer doesn’t have as much freedom. Although the discount strategy may be essential for securing one or two deals, but doing so regularly is simply not feasible in the long run.
While offering a lowered rate may be the only way to ensure obtaining a specific project that may be attractive for reasons other than price, Lares suggests a different approach. “I encourage freelancers I work with to offer a specific fixed fee for each project. This allows you to define the unique scope and deliverables for a particular project and client while maintaining your hourly rate. It also positions you well for future negotiations with a similar scope,” he says.
Fixed rates also simplify the process from both ends. If the rate is broadcasted and easily calculated, the negotiation already starts at the halfway mark, with the client already having clear expectations and an interest in your services. The fixed-rate approach is not a panacea, and sometimes offering a lowered rate is inevitable. But these cases should be limited and kept consistent, with specific criteria that is determined in advance and not on a whim. The discount criteria should have a specific reason for being and the amount viable to maintain the business. An example of a criterion would be to offer a discount for first-time clients, or some sort of voucher for referred business.
Determining whether the potential client is worth the trouble
Most freelancers are tempted to handle every single potential partner like they are the president of the world during negotiations and before a solid relationship has been built, especially if they are just starting out. But as the age-old adage dictates ‘time is money. Plus, the situation can be downright nerve-wracking - spending tons of precious time on someone only to hear (or say) say no in the end.
In order to establish whether a possible client is worth the time and effort that you are spending on them (or willing to spend on them), it is necessary to evaluate the following key aspects of the deal: pay and value. Pay is simply defined as the financial aspect of the transaction, or how much you will get paid at the end of it. Pay is just as simple to articulate into time and effort; the higher the pay, the more resources can be spent in acquiring it. Value is more subjective and can be defined by how passionate you feel towards the project, or perhaps by some other perks that are offered by the client, such as putting your name on the project.
When combining these two elements, a grid is created that splits the clients into four categories:
High Value, High Pay
Although it is obvious that valued clients who pay you what you want and more should be put in first priority. But it is important to note that these clients should not be taken for granted – they should always be responded to in a timely and courteous manner to maintain the mutually beneficial relationship.
Low Value, Low (or no) Pay
There is only one reason for keeping in contact with this group of clients, and that is if you have reason to believe that they will relocate to another group on your list. For example, if you will soon offer a service that they are willing to pay well for, or if you can delegate their tasks to a partner to receive referral bonuses.
High Pay, Low Value
Client that that do not have a solid relationship with the freelancer usually end up in this category. The work styles may conflict at times or the established relationship is far from personal. This category also often houses potential clients when their negotiator is given instructions that they personally may not agree with, or when they fundamentally disagree with their company’s leadership. These negotiations should be taken with a grain of salt—they’re very likely to disappear.
Low Pay, High Value
This category is the most precarious because there’s a disconnect between what the client actually needs and what the freelancer can provide. This can cause said freelancer to get stuck doing favors and obscure jobs that don’t fit their profile on the thin hope that one day the client will hand them that project that they long for. In this particular category, the relationship is exactly what hinders the freelancer, because it “feels” valuable. It is essential to remain cautious of such noxious negotiations and keep them at arm’s length and perhaps even to move them to the “Low Value, Low (or no) Pay” category until they can provide proper pay for proper work.
By building relationships, maintaining your rates, and allocating your negotiating effort appropriately, you can find the autonomy you seek as a freelancer while building a pipeline of rewarding work.