The Vendor Client Relationship

By Shamus
on Jul 25, 2009
Filed under:
Movies


Link (YouTube)

I’ve heard many of these excuses and pleas before, or variants on these themes, and I’ve never even been involved in the financial end of things. This really is how people do business, and it’s sort of funny to see this same thinking applied to everyday situations. I watch this and nod my head, this is SO true.

Having said that, I actually think it’s not unreasonable to haggle a bit when you’re negotiating for goods or services that you’ll be using for years and that will run you in the millions of dollars. As a vendor, you can’t just slap a $999,998.98 pricetag on something and call it a day. Well, you can but you’ll be losing money on one side or the other if you just stick to that price. Some companies will be huge and rolling in cash, and your product is peanuts to them. To them, buying your stuff is the equivalent of a beer run. They just don’t want a lot of hassle, and you can pad the everlovin’ crap out of your invoices and they’ll never care. On the other hand, a mid-size company might only be able to buy your thing if you come down a bit. If you start high and let them haggle you down, you’ll get as much as possible from both types of clients.

But the price isn’t the really volatile part of the equation in my experience. As someone who has done some contract work, the place they really bleed you dry is in the implementation. It’s no good feeling smug when you get the customer to pay $10k for $5k worth of programming, only to have them squeeze $20k worth of work out of you with endless changes, refinements, and new features masquerading as “bug fixes”.

A skit about that would have the customer agree to pay $100 for their steak dinner ahead of time, but then nickle and dime the restaurant by asking for endless small little freebies and favors during the meal. (And sort of passive-aggressively holding the entire check ransom each time you balk at their demands.) By the time they leave they’ve had a steak dinner, three bottles of wine, two desserts, and they’ve left with the silverware, a chair, and the waitress. You started out so happy you were going to sell them $9 worth of meat and labor for $100, and now you’re wondering if you can escape this deal while you still have a restaurant.

It’s worth a great deal to me to be as far from the financial end of the business as possible. Let me write the code and for the love of ANSI don’t tell me anything about the money, it will only drive me mad.

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From the Archives:

  1. Jazmeister says:

    Took me a while to realise this was about contractors (I’ve just had lovely clients so far). Interesting stuff!

  2. Mark says:

    “It’s worth a great deal to me to be as far from the financial end of the business as possible.”

    Truer words were never spoken!

  3. scragar says:

    Having done freelance web development for a while before now I can say that customers have no idea of the value of what they are getting, that’s why they expect you to come down in the price, they see a nice interface, think “We could mock this up in 20 minutes in MS paint, why are we paying £200 for it?”

  4. Gahazakul says:

    This kind of thing freaks me out because I would like some work donr on my house which means calling a contractor to come over and I have zero clue on how much it costs to build a brick wall. I am also terrible at blind haggling. It makes me reluctant to even get it done.

  5. mc says:

    Gahazakul: might be advantageous to invite the contractor out for coffee and talk about business with him. This only works if you’re in/going into business yourself. :-)

    Alternatively, you can ask on a forum and find out how much it costs in order to get your bearings.

  6. echelon says:

    Eerily, I recently ranted about this on my blog too. I struggle to understand why business is still conducted this way after so many worst case scenarios have come true.

  7. Aelyn says:

    I own an IT consulting firm. This video may be the single most truthful thing ever posted on the intarweb.

    Shamus, you have a great point about being nickel and dimed after the sale. I’ve had that happen over and over and over.

    There are times that overruns are the fault of the vendor. Far more frequently we get stonewalled, delayed, and put off by the customer. We get, “Oh, we never click that button.” “Yes, you do. It is there. It is not within the grasp of a user not to click a button that would do Bad Things.” “Well, yeah… we do click it sometimes. But only on Tuesdays if it’s raining at 3:00.”

    Once I had a customer call me out to fix our software that we resell. They accused the software of connecting to the internet to verify their ownership and other heinous crimes. Turns out their network guy had them on an IP network that verified all addresses – internal or external – via their proxy server. So their proxy server connected to the internet any time they ran any network software. On top of that, their proxy server had only 5 licenses so they were all constantly being dropped. When we figured all this out, they wanted to pay half the bill. We fired the client.

    Gah. Thanks for starting my beautiful, quiet Saturday off with these memories, Shamus. I’m going to install Front Page extensions on your server for that.

  8. Jack V. says:

    Of course, in many places, small consumer transactions are a lot more one-off and haggling IS the norm.

  9. MNF says:

    Oddly enough, I’ve read a blog entry by Joel that argued for the very opposite – that larger companies are more likely to haggle well with you, because they make more purchases, and as such, are more likely to employ someone who’s sole job consists of haggling the prices down.

  10. Mephane says:

    Word, Shamus. This is exactly how I feel. I cannot stand all this business stuff, and luckily so far no one tried to make me do so.

  11. VTgamer says:

    Someone said to me that “you offer a great business relationship with great business service, they will keep on coming back to you. If you just sell your product at the lowest price, you will be quickly replaced by the next guy offering the lower price.” Unfortunately the Wal-mart mentality has permeated even in client-vendor relationships, and unfortunately most people think that you can be easily replaced by someone who can do it for less time and money even if they don’t understand that they are losing something (quality, expertise or just good service) in the process.

  12. A different Dan says:

    Funny, in the wholesale food business the situation is exactly the opposite. Larger clients get a better price because they buy in volume. IT contracting, in my understanding, is the exception rather than the rule because so much of the work is custom-built. A building contractor would also cut the client a break if the client was paying for two dozen buildings built on the same plan at the same location, rather than just one.

  13. Aelyn says:

    Oh, we offer discounts that are more easily taken by our large customers. If you pre-pay consulting in $10,000 blocks we offer a 15% discount off our normal rates. Note that this also largely prevents the situation shown in the video. Many large companies prefer this type of arrangement, and certainly we do as well.

  14. Neil says:

    If you think thats bad, try doing Department of Defense contracts. There are parts the company I work for refuses to do even with the gigantic profit margins the DoD is willing to pay.

  15. Shamus, I have the exact attitude towards this. Just let me write the code, and have fun selling it to the clients.

  16. Mark says:

    I think the difference is that the markets are on completely different scales.

    With barbers, restaurants, video stores, and retailers, the customer base is huge. Haggling over prices with hundreds, thousands, or millions of people isn’t feasible, so the vendors set prices and see how it affects sales. Customers vote with their wallets, and it’s a sort of trial-and-error process for the vendor to find the sweet spot that maximizes their profits.

    With vendors and clients (as opposed to customers), the scale is completely different. Depending on your organization, you may have anywhere from 2 to 20 clients. Because your market is so small, it’s feasible and often necessary to make adjustments to pricing in order to close a deal.

    But they still have a point. Why clients so often think that a contract is still open for negotiation long after the official sign-off is beyond me.

  17. BarGamer says:

    @Neil: DoD is a nightmare? I guess that makes Ironman a complete fantasy, then, if he had to go through all that trouble to sell ONE missile.

  18. Carra says:

    Also reminds me about Joel Spolsky’s post about setting a price. He mentions that big companies are the ones who will haggle down a lot:

    The big companies you sell to, the ones who should be willing to give you the most money, are incredibly sophisticated about purchasing. They’ll notice that your sales guy or gal is working on commission, and they’ll know that he’s got quarterly quotas, and they’ll know that both the salesperson and the company are going to be incredibly desperate to make a sale at the end of the quarter (the salesperson to get his commission, and the company to avoid getting their knees shot off by their VCs or Wall Street). So the big customers will always wait until the last day in the quarter and end up getting a ridiculously good price which somehow involves weird accounting shenanigans so the company can book a lot of revenue that they’re never really going to get.

    I’ve never done any contracting work myself but this is good advice: calculate your debugging time in the price…

  19. Zaxares says:

    Heh, while I’m not involved in the financial side of the company I work at in the slightest, I do know from association with the sales and marketing people that the video is absolutely spot on for how companies conduct business with each other.

    And it DRIVES ME CRAZY. I’m the kind of guy who prefers to do a little research, see which is the best quality I can get for my budget, go out, buy it, come back. I HATE haggling.

    And yet, there are some people who LOVE to do this. It boggles my mind!

  20. SolkaTruesilver says:

    Just imagine a second, you are talking about the financial aspect of every company. I work in the financial aspect of financial companies. When you are trying to sell your expertise as fund manager or consultants, it’s a violent business… :-S

  21. Rutskarn says:

    @ Solka: The financial aspect of financial companies? Isn’t that a pit of treachery and brimstone, a fetid hell from which no kind thought or purity can exist without being blackened by the filth-water of human cruelty?

  22. SolkaTruesilver says:

    @Rutskarn

    Indeed, it is. However, you have to know that little diamonds are hidden among that putrid water, which explains why so many people are fighting to the blood in that environment…

  23. HeadHunter says:

    I found the video to be a humorous (and accurate) reflection on the way people bargain in higher-end business – and how inappropriate and inapplicable it would be in retail or hospitality businesses.

    But it also made me realize something: Modern businesses of every kind are expecting more from their employees, while offering less in return. Benefits are slashed, labor is cut – leaving fewer staff to do the same (or more) work – but pay remains the same or decreases slightly.

    So employers are demanding more and offering less. It’s a wonder, then, that more people aren’t trying to haggle at every opportunity. After all, every customer is someone else’s employee, right?

  24. Monsieur Vatel says:

    Actually, it wasn’t so long ago that barbers, shopkeepers, and so forth DID haggle with their customers over everything. It was only in the last few hundred years that the idea of having one price for everybody, instead of different rates for friends, for women, for blacks, and so forth, stopped being something people did in small-scale businesses.

    The two solutions for vendors are 1) say, “Is it in the contract?” If it’s not in the contract, demand additional payment for additional service. If it is in the contact, fire your counsel because they can’t write contracts.

    2) If someone’s trying to haggle over price, just cut them off, tell them to call you when they’re ready to get real, and move on to something/one else. Part of the psychology of negotiation in those situations is to convince you that you’ve already invested SO MUCH time into the potential sale, it’ll be a waste if you don’t agree at some point!

    If you’re in a position of relative strength, you can counter-negotiate by raising the price every time they try to take it down. They will back down pronto.

  25. Veloxyll says:

    A lot of companies work on large volumes of sales though, and the time they spend haggling with you could be better spent selling something to the next guy, thus fixed prices.

    As for getting more out of less employees, it’s also (supposed to) include improving the employee’s skills to make them produce more with the same amount of effort. I mean, you don’t have any problem in principle with employers training you to do your job better do you?

  26. SolkaTruesilver says:

    @Veloxyll: But for those company who hope to be doing between 10 to 15 sales a year, negociation and bargening is everything! ;)

  27. HeadHunter says:

    @veloxyll: It has nothing to do with “skill” or doing one’s job better, it’s more like you’re doing your own job and someone else’s. Sure, you have to improve, just so you can keep up. But the fact remains that you’re doing far more work for the same (or less) money as before.

    Employers want more for less, but they’re not willing to give more for less. Ask a nurse, for instance, about the real cause of the so-called “nursing shortage”. There are plenty of people graduating from nursing school and receiving their licenses – they simply don’t want to work in the field because of the unrealistic demands and unsafe working practices caused by employers who aren’t willing to hire the number of people needed to do the job properly.

    Would you accept your own statement as an excuse when your child’s school cuts teachers? Do you really think someone can teach (or treat patients, or anything) better when they have significantly more people to attend to in the same amount of time?

    “Work smarter, not harder” is something pointy-haired bosses say to the people actually doing the work.

  28. rbtroj says:

    Honest to God, I thought this video was going to end with some sort of message slamming the Obama adminisration.

  29. Stringycustard says:

    Yeah, this is a constant factor in the design world. We’ve “lost” clients because they insisted on random time and money consuming extras that were never part of the original deal and were denied. It’s why I’m particularly cautious of freelance work (if companies I’ve worked for get screwed this way, how can I avoid it with just myself as backup). A lot of the time the company can’t afford to set out lawyers either, which clients exploit aplenty.

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