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Emily gives tips on agency negotiation.

After you’ve had calls with marketing agencies that you are considering hiring to help you solve your business problem or take your business to the next level, you’ll probably receive formal proposals from them that contain project scope and pricing.

So what’s next?

We have spoken with 6,500+ since 2015 about hiring a marketing company.

Many have a great understanding of what they are looking for, but when it comes to selecting and negotiating there’s a knowledge gap.

This is totally understandable since there is not much (good) content online about what you can/should negotiate and what you shouldn’t/can’t. There are a lot of companies who have never hired an agency before as well, so there simply isn’t experience to draw on.

That’s what we’re covering this topic today.

In this article we are going to cover:

  • Why a proposal is a starting point, not a final offer;
  • What to negotiate within a proposal;
  • What to not negotiate within a proposal;
  • How to choose an agency.

A proposal is a starting point

Let’s get this out of the way first.

There are two different ways to approach finding an outside company to work with (marketing or other):

  • Blast out a broad Request For Proposal (RFP) and invite companies to submit their best offer, then shortlist and select from there;
  • Speak with individual companies and ask them to send you a scope of work and proposal if they think they can deliver on what you want and need.

At Credo, we advice that you take the second approach. This is because direct conversations with companies who specialize in what you need will always be more fruitful than expecting a bunch of great proposals to land on your desk from random agencies who haven’t been able to get deeper information on your real needs.

Within this approach, proposals and working towards an agreement are not final until you have signed a contract. When an agency or consultant sends you a proposal for doing the work, that initial proposal is not their final offer. It is a starting point for a conversation. In an RFP process, it’s usually expected that the initial proposal will be lengthy, have a ton of research done, and is their final and best offer.

This leaves a lot of pressure on you, the hiring company, and doesn’t allow you to have a relationship with the proposing company before reaching an agreement.

When you’ve engaged in a consultative hiring process with agencies, which is what we empower at Credo, everything within a proposal is negotiable. This includes price, scope, and statement of work.

After first proposals are received, now it’s time to negotiate in a way that gets you what you need and ends in a win-win situation for both parties. Otherwise you may end up in an arrangement where one side or the other already feels taken advantage of, and this benefits no one.

Money decisions are emotional, not logical

Before we get into negotiating on a proposal or evaluating proposals, we need to talk about how we make money decisions.

Money decisions are emotional. This is true across business and personal lives.

Money makes us feel certain ways because of our backgrounds and fears in life and business.

From a psychological perspective, we are all budget-conscious. We like to think that we want to know first what we are going to get, and then what is going to cost us. In reality, too many of us first look at the price to see how that hits us or meets our budget, and then what the offer is.

Do not forget that money is inherently emotional.

We want to think we are making rational decisions around money, but usually we are making emotional decisions about what we spend and what we are spending on.

Just take a look at all the books written about money being emotional and how to get past them:

How does this apply to receiving and negotiating proposals?

The next time you receive a quote from someone for something, pay attention to your emotions. When you receive a quote that is higher than you expect, instead of saying “that’s outrageous and we can’t afford that” you can ask “Why is this so much higher than I expected and is it worth it?” This is Ramit Sethi’s D-to-C principle at work.

This is a good example of the D-to-C Principle: Derision to Curiosity

When you see someone spending in a way you don’t expect, it’s easy to dismiss it. (“I would NEVER pay for business class…what a waste!”)

Instead, get curious. How do they afford it? Why do they pay? https://t.co/69zvOsuWHE

— Ramit Sethi (@ramit) January 5, 2021

Let’s also recognize we all have an absolute max we can spend.

No one has unlimited dollars to spend even if you’re Google or Apple. Everyone in business has a budget that we cannot exceed, but even within the available budget I have seen people balk at specific pricing without even looking at what they are being proposed for that spend. They simply felt like the price wasn’t worth it, without actually looking at:

  1. What they’d get, and
  2. The results they should expect to see.

Should you aim to spend as little as possible?

We see this also when businesses are thinking about hiring but are not sure what to spend. They usually tell us “We want to spend as little as possible and then scale up” without actually thinking about or knowing what a customer costs them to acquire.

Think about it this way.

Let’s say it costs you $500 to acquire a new customer. Depending on your product’s price, this might be good or bad. Regardless, it’s your reality.

You want to start using Google Ads. Your aim is 5 new customers a month. But you want to start with $1,000 per month. An agency will also charge you at least $750+ per month to run your ads. Even a freelancer at $50/hr will cost you at least $500. Most companies we see thinking this way are spending $10/day on a channel and don’t want to increase that, by the way, until they “see performance”.

So now you’re spending $1,500 per month, but only $1,000 of that is going to ads. So, if your acquisition costs from other channels holds steady, you’ll get 2 customers (assuming your sales cycle is fast). But you paid $1,500, so your cost is actually $750.

You’ll never hit your 5 new customers per month without at least $2,500 per month in spend. If you’re spending $10 a day and won’t scale up until you see it getting you customers, and your acquisition cost is at minimum $500 per customer, you will not see a new customer for at least 2 months.

As a professional marketer, having run marketing teams and budgets and grown my own companies as the lead marketer, my approach is to spend as much as possible early on because I know I’ll learn that much faster.

If my acquisition cost is $100 and I want 10 leads, I know I need to spend at least $1,000 in a month to do it. If I know it costs me $100 to acquire a lead based on ad spend, and I want someone else to run them for me, then I know I’ll need to be ok with a $150 acquisition cost because it means I’m buying back my time and the expert I hire to do it should be able to get me better results.

What to negotiate within a proposal

Now that we’ve talked about the mindset you should be in before you hire and how to think differently about growth, let’s talk about negotiating a proposal. These happen before contract negotiations, which can also be lengthy.

Simply asked, what can and should you negotiate within the proposal?

First, the key to effective negotiation is to get the other party to move first. Simple ask them if this proposal is their final offer. If they want to win your contract, it almost never will be.

As a seasoned marketer, I firmly believe that everything in the initial proposal you receive is negotiable but only if you do it in the right way.

First, the wrong way. The common approach I see people take goes something like:

“That’s too much. Can you do it for less?”

Negotiating on price alone is a losing strategy and here’s why.

If someone quotes you $5,000 for work and then agrees to do it for $4,000, why are they doing that? There are a few reasons:

  • Maybe they’re hurting for new clients and just want to sign you, and were trying to take advantage of you with their first quote.
  • Maybe they’re bringing on new employees/trainees and can bill them to you for less. So you’ll have junior people on your account.
  • They’re willing to do it for less, but this also means you’ll be one of their smaller clients and thus won’t get the same attention as a larger client.
  • And others.

Is this the kind of company you want to work with, one that might be trying to take advantage of you, or is going to put junior people on your account?

The fact that agencies have to prioritize clients who are paying them more over those who are paying them less is inescapable, but is also something that you should be aware of. The smaller your account, the less attention you will get.

This is why I believe in paying an agency what they need to do great work. You’re putting the right amount of budget towards something to give you the best chance to reach your goals instead of trying to squeeze everyone around you and applying pressure that doesn’t need to be applied.

At worse, you apply so much pressure that results are not possible. Expecting $1,000 in spend to do the work that should take $5,000 isn’t going to get you the results.

You simply need more budget.

A better way

If the price is higher than you can or want to pay, then there is a way to get it down. I always say:

Negotiate on scope, not price.

John Doherty

Asking for a discount without asking for fewer services/products is like going to the grocery store, getting all the things you want, and then telling the cashier “Can you take 10% off of that?”

They’ll either tell you no, laugh you out of line, or tell you to take something out in order to get the price down.

It’s the same way with a proposal for professional services like marketing. The kind of company you want to work with will not cheapen their rate just because you ask, but will work with you on a scope that they still believe will bring you value but is more in line with what you are able to pay.

The conversation isn’t fun, but if you truly want to work with them then you are well within your rights to ask “What can we do to bring the price down to $X,XXX?”

The company may not have each item priced out individually (though I do recommend that they do this so that you understand what you are getting), but if they do then you have more knowledge and can determine if specific things they are quoting you are worth it to you. You should allow them to explain the value that specific things will bring you, and then you can make a decision about what you want to invest in or not.

Negotiate on scope, not price.

What to not negotiate within a proposal

This section is a bit tongue in cheek. Everything within a proposal is negotiable, but once a contract is signed it is no longer negotiable unless you want to go back and renegotiate the contract, which also leads to a delay in the work getting started.

This said, sometimes you cannot negotiate everything within a proposal because the proposing company does not believe that what you are asking for will actually get you the results that you are looking for.

This is a good thing.

When you are speaking with a company that won’t take your money for a reason like this, you should pay attention! That company is trustworthy. They don’t want your money for something they can’t deliver on.

How to choose a marketing company

Choosing a marketing company is a tough challenge regardless of your experience and budget. This is because it’s not just about whether they can do the work, but also if they can do it effectively within budget and if you like working with them. Ultimately it is about results, but the others leading up to it are just as if not more important.

After three years of running Credo, I am firmly convinced that most people will continue working with someone they like a lot who is getting them good results. They may think that someone else could get them better results, but that is a risk that they are reticent to take, and understandably so. Fear of loss is stronger than hope of gain.

Our full guide to hiring a marketing company is here that you can download and read at your leisure, but to boil it down in order to choose a marketing company you need to look for:

  1. Do they have experience with my kind of company that they can show me?
  2. Can they work within the budget that I have?
  3. Can they explain well what they are proposing to do and the results they think it will get me?
  4. Are they willing to discuss the project I want and propose that to me?
  5. Do they listen to my needs and desires, and not try to upsell me unnecessarily into things I don’t need?
  6. Are they transparent about the work they are doing and what I am paying for?
  7. Can they define how the effectiveness of the project is measured?

If you start with the above, you will be ahead of 90% of companies looking to hire a marketing company. These seven questions alone will help you eliminate the companies that are wrong for you and get you to the ones who should be pitching you for your business.

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