Contract Negotiation Strategies for Consultants and Freelancers
It's no secret that lots of freelancers and consultants who serve corporate clients are faking it until they make it with contracts.
It doesn't matter which approach you take. You could be the person who fights for every term you think you need or you could be the person that takes whatever you can get to keep things moving so the client doesn't change their mind.
The point is that most freelancers and consultants don't have solid contract negotiation strategies that help them stand their ground strategically (in a way that most benefits their business) against corporate clients. And that's because you lack the legal know-how you need to go into every contract negotiation prepared.
In today's article, I'm sharing 3 rules of thumb every consultant and freelancer needs to follow if you want to arrive to the negotiation table prepared to get a better deal from your client. Those 3 rules are:
Know Your Risks Going into Every Contract: know what legal issues impact your business, how you're currently managing them, and how the contract might effect them.
Negotiation Starts During Sales: there are key questions you need to ask during the sales process that will help you create a better proposal with an appropriate price.
Know and Own Your Leverage Points: know what terms you need to have in every contract for the deal to be a "yes" for you. If you don't have those terms, then it's a no-go.
Before we jump into each rule in more detail, let's first make sure we're on the same page about the purpose of contracts.
Contracts Define the Working Relationship
The first and most important thing you need to understand about contract negotiation is that this is not a poker game. We're not trying to bluff each other so we can win something from the other person. Too many folks approach contract negotiation like a competition with winners and losers, when the real point of it is to agree on the terms of the working relationship between you and your client.
Because, ultimately, a contract is there to define the working relationship and your goal is to ensure that the terms of the contract facilitate a healthy and respectful working relationship. That means your contracts need to state who is responsible for what and when, detail how you all want to handle a break up (early termination of the contract), and set clear expectations that everyone agrees to follow.
Your goal in contract negotiations is to tell your client what terms you need in the contract for the working relationship to be successful. Some terms will be required, others you can compromise on, and others you can go without.
The 3 contract negotiation strategies I'm sharing with you in this article will help you start to figure out what’s required and what you can afford to compromise on.
Strategy #1: Know Your Business’s Legal Risks
Understanding your business's legal risks and how contract terms impact them is a key part of having a solid contract negotiation strategy. Knowing those risks is the beginning of determining what's in bounds and what's out of bounds for your contracts.
For example, the biggest risk pretty much every freelancer or consultant faces is getting paid, both in full and on-time. Ensuring clients pay you for your services is how you keep the lights on and pay both your business bills and your personal bills. And on-time payment is key for your business's cash flow.
When I meet with lowercase legal members to talk about their contract negotiation strategy, the first thing we talk about is getting paid because it's their biggest risk. We talk about how they manage cash flow generally in their business, how they approach pricing (this usually involves me telling them to raise their rates!), and then we turn to what's in their contracts. Specifically, we review all the terms in the client contracts that determine or impact payment including the scope of work, payment terms, intellectual property terms, termination terms, and the merger clause.
We review each clause and discuss what needs to change to make it more likely than not that they get paid in full and on time.
Understanding the different risks your business faces is the foundation to creating an effective contract strategy. If you want to do a legal risk audit of your business, you can check out my blog series that walks you through what legal risk is and the step-by-step process of doing a legal risk audit for your business. You can also join lowercase legal where I walk you through the process myself.
Strategy #2: Contract Negotiation Starts During Sales
I talk about this a lot on social media because so many folks aren't aware that the contract negotiation process starts during sales. When you're having discovery calls with potential clients to understand what they need, you also need to be gathering information about how they work with contractors and vendors.
Some of the more important questions to ask your potential clients during the sales process before you give them a price are:
How long does it take them to pay an invoice?
Do they have insurance requirements for vendors and if so, what are they?
What are the specific services and/or deliverables they want you to provide?
What are their goals/reasons for hiring you and how does your work fit into their overall strategy/vision/KPIs?
What is their vendor onboarding process and how long does it take?
Who will own the intellectual property?
How do they usually pay their invoices?
The answers to these questions help you understand what kind of value you'll be delivering to your client so you can charge correctly for your work. They also help you uncover hidden costs of working with your client. Things like required insurance, long payment terms, and tedious vendor onboarding processes cut into both the time you spend on the project and the money you earn on it. Knowing about these things up front lets you pad your pricing to cover these additional costs.
Strategy #3: Know Your Non-Negotiable Leverage Points
A lot of folks enter into contract negotiations not knowing what their walk-away point is. That often leads to folks making arbitrary one-off decisions about whether to move forward with a client project or not.
Arriving to the table prepared means knowing exactly what you need for the deal to be a go. This is different for every business owner and often based on your business's risk profile, but here are three important leverage points to have:
Being able to terminate the contract for any reason. For some reason, clients are still sending freelancers and consultants contracts where you don't have the right to end the contract. This doesn't work. If the Client isn't paying, not responding to your inquiries, or simply just a pain to work with, you need to be able to walk away from the deal. A contract that doesn't give you the right to do that is a dealbreaker every single time.
Having clear terms for how and when you will get paid. This does not include saying that you'll figure out the payment terms via email. The contract itself needs to state when you'll get paid (net 15, 30, etc.) and how you'll get paid (direct deposit, credit card, etc.). It can also be beneficial to include what currency you'll get paid in if you have international clients. But leaving payment terms as a TBD on your to do list is not the answer. Any client who isn't willing to put in the contract how and when you'll get paid is a walking red flag.
Don't transfer the intellectual property rights to your client until they pay in full. This is a personal favorite leverage point that I like to use. It can be just as powerful if not more powerful than a late fees clause to remind your client that they don't have the right to use the deliverable you created until they pay you. It also leaves the door open to relatively cheap methods of enforcing the contract if your client continues not to pay you.
Preparation is the Best Contract Negotiation Strategy
If you've read this far, then hopefully you're starting to understand what a difference preparation can make in your contract negotiation strategies. Most of the folks I see struggling with contract negotiation are only struggling because they're going in blind. But that doesn't have to be your reality.
With a bit of reading and a couple of hours thinking strategically about your business, you can take an empowered approach to contract negotiation that gets you better paying client deals.
If you want to learn more contract negotiation tips, you can check out my Contracts 101 articles or join my newsletter for savvy freelancers and consultants who want legal strategies that secure the bag.