And What Comes Back For It

Dear friend,

The riddle first, as ever. Your century today, and the request in it arrives pleasantly, from somebody you like, and is the most expensive sentence of your year.

Two firms are asked the selfsame thing:
Give ten per cent, we'll send you more.
One gives it, glad to hold the trade,
One asks: and what comes back for it?
Same client, same year, same amount.
Which one was thanked? And which was drained?

Hold your answer. Story time.

The Story

Two firms in the same trade, and the work, all together now, was equally good. Each had a large customer, well liked on both sides, and each was asked the same question in the same month: given how much we send you, could you not do better on the rate?

The first said yes, and said it quickly, because the alternative was an awkward silence with somebody who mattered. Ten per cent came off, and the promised extra work was mentioned warmly and never quite specified.

What arrived over the following year was roughly the same volume as before, at ten per cent less, which is the ordinary outcome and surprises everybody it happens to. There had been no dishonesty. The extra work had been an intention rather than an undertaking, and intentions do not survive a busy quarter.

Worse, the rate was now the rate. It had no expiry, no conditions and no memory of why it had been granted, so it applied in the thin months as well as the fat, and it applied to a customer who had not changed his behaviour in any respect.

And the following year he asked again, which is not greed but arithmetic: a man who has learned that asking produces ten per cent will ask again, and the second refusal is far harder than the first would have been.

The second firm answered differently, and pleasantly, and without hesitation, which matters as much as the words. I can do better at volume, certainly. Here is what it wants: twenty jobs committed for the year rather than sent as they arise, payment in fourteen days rather than forty-five, and the scheduling left to me so I can fit them around the busy weeks. Do that and the rate comes down by ten.

The customer took about half of it. He could commit twelve, could manage the fourteen days, and could not give up the scheduling. So the rate came down by six, and both parties felt they had done a piece of business rather than one of them having been leaned on.

Three things were true afterwards. The discount was paid for, in commitment and in cash flow, which are worth real money. It had conditions, so it could be withdrawn without insult if the twelve jobs never appeared. And the customer, having negotiated rather than merely asked, valued the arrangement instead of pocketing it.

The Lesson, Since You've Earned It

A price given away teaches the customer that your price was never real. A price traded teaches him what it costs. The request itself is entirely reasonable and you should expect it from every substantial customer eventually. What decides the next five years is whether the reduction arrives as a concession or as an exchange, since a concession has no conditions, no end and no lesson in it, while an exchange leaves both parties knowing exactly what was bought.

So the useful reply is never yes or no. It is what comes back for it, said warmly, followed by a list of the things that genuinely reduce your cost or your risk. Committed volume rather than intended volume, since a promise of future work is worth nothing until it is in a diary. Faster payment, which is a real transfer of value and one most customers can grant more easily than they can grant anything else. Scheduling in your quiet weeks, which fills the trough at no cost to anybody. Fewer variations, a smaller scope, their own people doing part of the work.

Every one of those makes the job genuinely cheaper to do, which means the discount is funded rather than absorbed, and a discount that is funded can be given generously.

Two things to insist upon. Put an end or a condition on it, so that the rate is attached to the behaviour rather than to the customer, and can lapse quietly when the behaviour does. And never grant it on the strength of promised future work alone, since that is the one currency that reliably fails to arrive, and the man promising it is not lying, he is guessing.

And if there is genuinely nothing they can offer, the honest answer is a smaller job at the same rate rather than the same job cheaper, which the letter on that sentence set out and which holds just as well for your largest customer as for a stranger.

Three questions, and think of your biggest account:

1. What would genuinely make their work cheaper for you? Write the list before anybody asks: commitment, timing, payment, scope, access. That list is your negotiating position and it takes twenty minutes to prepare in calm weather.
2. Which discounts are you currently giving for nothing? Go through your rates and find the ones granted years ago for reasons nobody remembers. Each is a permanent reduction attached to no behaviour at all.
3. What is your sentence? Say it aloud: I can do better at volume, and here is what it wants. Rehearsed, it comes out as business. Improvised, it comes out as either a surrender or an argument.

The Answer to the Riddle

Which one was drained?

The one who said yes to be agreeable. He bought a year of goodwill with ten per cent of his margin and got the same volume of work, no conditions and a fresh request the following spring. His rival gave away six per cent and received twelve committed jobs and payment in a fortnight, which were worth considerably more than the four he kept back. The customer was the same man in both stories, asking the same reasonable question, and one of them answered it as a favour and the other as a trade.

The verse:

Give ten to keep a friend content,
And ten is what your price is worth.
Ask what returns before it's spent,
And both of you will know its worth.

Until next time. Go and write the list of what would genuinely make your work cheaper, before your largest customer next asks the question.

P.S. Watch the tone in which you answer, since it carries more than the words. A rate defended anxiously invites a second attempt, and the same rate discussed as an ordinary matter of business rarely does. You are not being attacked. You are being asked a question that any sensible buyer would ask, and the calm answer is itself part of the price.

Also in the archive: When They Say It Is Too Expensive, The Weaver's Four Sentences and While You're Here.