Law firms should not be afraid to broach the subject of fee negotiations for fear of clients baulking at the mention of money. Paul Denvir and Paul Matthews offer advice on how to close a dedal with confidence

Law firms are reporting that clients are becoming more fee-sensitive, thanks to the economic gloom – winning work at the right price is becoming harder. So how do you handle fee resistance and negotiate the right deal for the client and your firm?

The first obstruction to successful fee negotiations is often the mindset of the negotiator. Those who lack confidence in their fees and/or do not see the value in their proposition tend to be less successful than those who do.

In a recent workshop, we met a lawyer who said he "struggled to close deals". In the session, it became clear that his lack of confidence coloured his whole approach to client meetings. He really believed clients were fee-resistant and everything they said seemed to reinforce his view; his lack of confidence was palpable. In contrast, one of his colleagues was very successful at fee negotiations. Her confidence was evident and she knew how to handle fee resistance.

In these situations, she explored what competitors had quoted and what was offered for that fee. Where there was a difference in both price and offer, she was good at communicating the further benefits the client would gain from her firm's solution. If the client still wanted a reduction, she changed the offer and reduced the features and benefits in line with the reduction in fees proposed by the client.

Another thing we noticed was her attitude. Rather than going into a negotiation focused purely on what she must win, she consciously evaluated the client's situation. Her focus was just as much on helping them to win as it was for herself; she had a win/win approach to fee negotiations.

Win/win

Many professionals believe they adopt a win/win approach to fee negotiations (because they are not consciously looking for their clients to 'lose'), but in reality their aim is to get the best deal possible for their firm. Real win/win comes from finding mutually beneficial solutions. These solutions are not an evenly split compromise, where one side reduces on this and the other reduces on that. The possibility of win/win comes from negotiating on interests rather than positions. Positions are what a person states he or she want to achieve from a discussion; interests are why a person wants to achieve what they do – these are the underlying reasons or motivations behind what they are looking to achieve.

A position may stem from a large number of interests. The good news is that not all of those will be in conflict with ours. One interest could also manifest itself in a number of positions. So, if we know the other person's interests we may be able to help them achieve these through ways other than their stated positions. In this situation we have widened the scope of the solution and can now explore ways in which both sides' interests can be satisfied as fully as possible.

The four phases of negotiation

In order to maximise the chances of achieving a mutually profitable outcome to a negotiation, it is vital to ensure that the negotiation is managed well. Every negotiation should be managed through four distinct phases.

The preparing phase

Success in the negotiation is closely linked to the quality of preparation that takes place in the preparing phase. So what should you plan for? Here are some areas we recommend:

• Your 'offer' and its components;
• What you can/will move on;
• Your best outcome and fallback position;
• How you will open the discussion and state yourcase;
• What you know, don't know and/or need to know;
• How to gain an understanding of the client's positions and interests;
• The competition and the client's perception of them; and
• The client's potential tactics.

Your offer is likely to be made up of a number of components. Some of these will be fixed – in that they cannot be altered in order to achieve an agreement. Others will be variable – they can be altered in order to be achieve an agreement. By understanding your fixed and variable components, you will be able to see what you can move on in order to achieve a win/win deal.

The discussing phase

The best negotiators we have seen use the discussing phase to: fill any gaps in their knowledge and understanding; build empathy and trust with the client; exchange opening positions; and explore the different interests in the negotiation.

They do this by being very open and honest about why they want the information and they are prepared to give information in return. Good negotiators start the discussion positively and make it a priority to discuss and agree the process that the negotiation needs to take. They are also happy to acknowledge any differences and demonstrate a real desire to gain agreement from all sides.

One lawyer we saw recently was impressive in a fee negotiation and was brilliant at stating his case. Not only did he demonstrate confidence, he was very clear in stating both his interests and his positions and often gave reasons before doing so, to help the client understand. When the client responded he didn't attack or try to fight back. Instead, he listened and tried to understand them. In confirming his understanding, he was able to explore the underlying interests the client had.

The proposing phase

In this phase of the negotiation the aim should be to 'sound out' potential alternative bases of agreement (but without giving anything away). A great way of doing this is using the 'If you… then I' technique. It enables you to explore possible solutions, without making a commitment.

The bargaining phase

The last stage of the negotiation sees the negotiators firming up their proposal and counter proposals in order to reach an agreement. If there is deadlock here, they look for ways the other side can move without losing face.

Finally, the best negotiators are not people who 'drive a hard bargain', neither are they soft and overly-accommodating. Instead they mix toughness and warmth to broker win/win negotiations with their clients.

Paul Denvir and Paul Matthews are consultants at The PACE Partnership.