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Billing and negotiating: One-offs vs Retainers plus projects

Before reaching any contract agreement, price negotiation is always an important and unavoidable step for an agency to deal with clients when setting the project budget. Depending on the types of clients, i.e one-off clients or retainers, the agency normally has different ways to charging the bill and negotiating price (Luecke & Patterson 2008). An understanding about how this issue addressed in local context would help advertisers, especially those are fresh men, know the techniques of how to handle successfully price negotiating with different types of clients in real life’s communication workplace, making  profits as much as posible for the compamny.

Specifically, this article with the support of Mrs. Nguyen Phuoc Hong Hanh, Event Manager of Scarlet Communication, standing in agency’s perspective attempts to answer a challenging question: How does an agency handle billing and negotiating with one-off project clients differently from negotiating with retainers plus projects?

Reprodcued from: North 2012

With more than four-year experience working for three agencies, including Le Bros, Hong Thuy Communication and currently Scarlet Communication, which is an exciting new PR and below-the-line boutique agency based in Vietnam (Scarlet 2012),  Hanh has directly worked with several types of clients, gaining enough skills and techniques to be a good negotiator dealing price with clients successfully.

Mrs. Nguyen Phuoc Hong Hanh (Reproduced from: Cassie Chit 2012)


Proof of Life

Billing differences
“The level of commitment and relationship between clients and agencies affects significantly the way agencies pricing and negotiating the bill”, Hanh stated firmly about the main reason why advertisers making the bill of one client differently to that of the other. Specifically, she said that due to low level of commitment, one-off project clients are normally charged higher than retainers plus projects. For example, while the agency just charges retainers plus a project 15% for management fee, “shop around” clients with no or low commitment will receive a higher cost, i.e 15%-20%, for the same category. Moreover, retainers is also “favored” over one-off clients when normally being shown the fixed-price rate cards with the base cost by the agency; meanwhile,  the “shop around” ones tend to receive higher cost rate cards that the agency wishes to charge them but still in a reasonable price.
The idea that Hanh shared in terms of different ways of billing is somehow consistent with the theory suggested by business scholars which highlight different ways that advertisers use frequently when billing their clients: fixed price with base cost for long-term customers (i.e service retainers), other projects plus cost extra but not as high as charging short-term clients (i.e. one-offs or also “shop around” clients) (Carrell & Heavrin 2008; Lyons 2007).

Price negotiating

Reproduced from: David 2011

Talking about negotiation, Hanh asserted that “negotiating price with one-offs always takes longer time and requires more techniques than doing with retainer partners”. Specifically, compared with one-offs, retainers do not bargain much by looking the base cost rate cards that the agency gives them and also because “they believe that we – the agency as the long-term partner – will not charge them high” as Hanh believed. However, once retainers ask for discounts, the agency should really consider to cost down to ensure the profit it can earn. One valuable tip that Hanh shared was that the agency should show and compare its cost with the standard cost in the market to retainers, to let them examine how worth and reasonable cost that they receive from the long-term agency.
On the other hand, negotiation works tougher and longer with one-offs clients. “This type of client always bargain in order to get the lowest fee”, said Hanh.  To negotiate price successfully with one-offs, Hanh shared three valuable techniques and tips as following:

  • Try to guess their BATNA without releasing the agency’s: would help the agency save time and know how much it should charge and convince clients easier. At this point, Hanh seemed to share the same viewpoint with academic researchers who encourage learning clients’ BATNA to get better chance succeed price negotiation (Lyons 2007; Lewicki,  Saunders & Barry2011).
  • Asking “How could you get the same quality with that amount of money?” question: to the clients if they claimed that they can find other agencies costs them lower than yours. Asking this question would make clients consider the quality/value that your agency can offer better than others.
  • Once discount one thing, increase the others, or at least do not discount the others: because if the agency discounts many items at the same time when clients require, they would doubt and re-consider how reasonable the agency charge them.

Compared with academic studies about negotiation methods, Hanh – the real life’s advertisers – did differently. If scholars claim distributive bargaining, which is “win-lose” method, for short-term clients and integrative bargaining, which refers to “win-win” negotiation method, for long-term one (Lewicki,  Saunders & Barry2011), Hanh applied the latter bargaining method for both types of clients. As she explained that “I don’t want to burn my bridge with clients, no matter those are one-offs or retainers. What a good negotiator should always consider is a long-term relationship with a client, not just a deal. An arrangement that causes one side to feel forced to accept a bad deal not only can destroy the potential relationship, but also cause a bad image for the agency”. This statement explains the reason why Hanh still accepted discounts for one-offs even though they just worked with each other at the first time.

In sum, due to a higher level of commitment and relationship, the agency tend to charge retainers’ bill lower than one-offs’. While the agency finds it easier to negotiate with retainers by showing the fixed-price rate cards with base cost and letting retainers compare agency’s cost with standard cost in the market, working with one-off project clients is tougher and takes longer time. With her experience, Hanh suggested that guessing clients’ BATNA, asking “How” question and a few discounts are some techniques that a good client manager should consider when negotiating price with one-offs. Moreover, integrative bargaining would be the best method in negotiation. As a future advertiser, i personally think Hanh shared many valuable tips about price negotiation and especially the use of intergrative bargaining suggested which i think is helpful to get more accounts and build a long-term relationship for the agencies.

Posted by Huynh My Ngoc

Word Count: 1098

References

Carrell, MR & Heavrin, C 2008, Negotiating essentials : theory, skills, and practices, Pearson Education, New Jersy.

Cassie Chit 2012, image, Facebook, viewed 04 May 2012, <http://www.facebook.com/media/set/?set=a.1288903216702.2043325.1053852903&type=3>.

David, K 2011, ‘Winning price negotiation wars with customers’, image, Open Forum, 11 February, viewed 10 may 2012, <http://www.openforum.com/media/95d40229-4261-4e83-a185-d26ab9b9af37_detail.jpg>.

Luecke, RA & Patterson, JG 2008, How to become a better negotiator, 2nd edn, AMACOM/American Management Association, New York.

Lewicki, RJ,  Saunders, DM & Barry, B 2011, Essentials of negotiation, 5th edn, McGraw-Hill, Boston.

Lyons, C 2007, I win, you win : the essential guide to principled negotiation, A & C Black, London.

Hanh,  Nguyen Phuoc Hong 2012, interview, 21 April.

North, A 2012, ‘How to Negotiate for a Lower Price on Anything’, image, Jezebel, 12 Jan, viewed 10 May 2012, <http://cache.jezebel.com/assets/images/39/2012/01/92d03c2ea4d1781e56dac54b35f66288.jpg>.

Scarlet 2012, homepage, Scarlet, Vietnam, viewed 08 May 2012, <http://www.scarlet.vn/>.

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One thought on “Billing and negotiating: One-offs vs Retainers plus projects

  1. Always a good tip: never burn your bridges! Agree. ~Mel C

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