Modern Marketing

How to negotiate your way out of ‘stagflation’

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By Mike Lander | Founder & CEO

July 5, 2022 | 6 min read

The UK news is full of talk about escalating inflation, interest rate hikes and low economic growth. In the early 1970s, when I was nine years old, Iain Macleod was talking about ‘stagflation.’ The root causes were different back then, but the situation today has a scarily similar ring to it.

As agency owners, stagflation presents a new set of challenges when negotiating with your clients. In this article I’ll set out:

  • The pressures on clients in this environment

    Lightning - Road sign - Economic recession

    A recession doesn’t have to be a road to Armageddon / Adobe Stock

  • What your clients are likely to be asking for

  • What your negotiation strategies should include

The pressures on clients in this environment

We’ve been seeing an ever-tightening grip on budgets by brand chief financial officers in the last three months. Storms are clearly on the horizon and they’ve known for some time. Some of the heightened pressures on brands (your clients) include:

  • Unprecedented supply chain disruption/chaos

  • Escalating input costs (direct and indirect)

  • Inability to match input cost rises to consumer price increases

  • Spiraling cost of corporate debt

  • Depleted cash reserves on their balance sheets

What your clients are likely to be asking for

Therefore, given the economic uncertainty, financial pressures and supply chain chaos, the ‘ask’ is changing. Even if you’ve got a secure three-year contract and your KPIs are tracking well, nothing is safe. Here are just a few of the changes I’m seeing when clients are re-negotiating with their agencies:

  • Extended payment terms eg 45 days on invoice goes to 90 days on month-end

  • More value for money, eg they need to see quantifiable ROI >8:1 over 12 months

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  • A change in priorities from long-term brand development toward short-term performance marketing

  • Rate-card reductions across the board

  • Fewer long-term retainers and more short-term projects

  • Termination for convenience on 30 days’ notice

What should your negotiation strategies include

So, how do you proactively deal with this? How can you prepare for difficult conversations? How do you ensure you maintain acceptable margins and retain long-term clients?

The first thing to do is get your house in order around data, reporting and evidence. For existing clients, you need to be heading into QBRs with a compelling story. This means evidence that demonstrates that you’re smashing your KPIs and adding more value than expected. Give them a story that they can take to their bosses about why you’re such a compelling agency to maintain and grow with.

Next, prepare for tough negotiations. This applies to existing and new clients. You need to prepare in advance for difficult conversations. Use this four-step process to prepare:

  • Step 1: What’s the context? What are your goals and theirs? What criteria are you going to use to judge if this is a good deal for both parties? What’s your and their BATNA?

  • Step 2: Map out the ideal timescales within which you want to complete the negotiations. What are the big milestones?

  • Step 3: Brainstorm all the negotiation variables and your ideal outcome, plus the least acceptable outcomes. Here’s some examples of the negotiation variables you should be thinking through:

    • Contract minimum term and notice periods

    • Termination rights ie for cause, not convenience

    • Rate cards based on independent benchmark data eg IPA, Isba

    • Payment terms

    • Different commercial models and scope eg fixed-price deliverables, T&M, agile, retainers, risk/reward

    • Annual inflation clauses linked to third-party economic references

    • Exchange rate clauses to mitigate potential Fx losses (and not make money from Fx gains)

  • Step 4: Engage with your counter-party and keep track of all their issues and concerns. Then, as you gather more information, re-plan and re-engage

Conclusions

A recession doesn’t have to be a road to Armageddon. Having been through five recessions, there are common lessons to help navigate a path. The practical techniques in this article won’t make you recession-proof, but they will definitely form one of the cornerstones for success.

I’d love to hear your views and experiences, so please email me with any thoughts/questions.

Mike Lander is the chief executive officer and founder of Piscari. We work with agency leaders to improve their sales negotiation skills and provide insights into how procurement professionals work.

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