Freelancers, price negotiations and opportunity cost – a resulting tale

 

Freelancers set their own prices and must, therefore, negotiate them. Many customers, especially from the Middle and Far East, relish price haggling and practice it at every opportunity. This face-off presents the entrepreneur with a set of choices, namely if and how much to bend. Yet, in deciding how much to handle these negotiations, many solo businesspeople forget the impact of opportunity cost, a factor that cannot be ignored. I will share my experience dealing with this situation, a positive one I am happy to say, and my analysis of the potential outcomes.

To begin, it is important to define the term opportunity cost. The basis is the assumption, generally true of freelance work, that a person working on Project 1 at a specific moment cannot take on Project 2 at the exact same time, i.e., the cost of taking on Project 1 is the inability to accept Project 2. This cost is most noticeable on larger projects that require many hours or several days to complete. Its verbal expression is the outcry “Why did I agree to this job? Now, I can’t take on that project!” Of course, in some cases, it is possible to work almost simultaneously on two different projects or outsource one of them. Even more importantly, the cost is only potential as it is generally impossible to know if and when a better project will arrive in your email. Thus, opportunity cost can be high, but it is uncertain.

This week, an established customer contacted me about certified translation of some 7 personal documents from Hebrew to English. I provided a quote, which was immediately followed by a significantly lower counteroffer. I made a small concession to no avail. The next day, the customer sent me an amended package, 4 of the 7 documents. The result was the same, but without any concession to price on my part. The following day, the customer informed me that it had found another service provider. All this correspondence took almost an hour. Most curiously, several hours later, a new customer contacted me with an interesting new project, a certified translation of a Russian-English asylum request, and immediately agreed to the quoted price and deadline. The invoiced amount was much higher with very few additional hours. On this occasion, I came out ahead in all respects.

In terms of odds,  a positive result is highly probable in this situation. If the customer refuses to compromise and I lose the order, my maximum potential loss is a small amount of income and future business. Neither the insistence nor the loss of the customer is certain. It is quite possible that this buyer will return to me. Meanwhile, I may and did gain a new customer and quality project, which is far more valuable separately and together than the original project. If no new project appears in the immediate timeframe, I lose a small amount of business but I can use that time for alternative activities, e.g., marketing, physical exercise, viewing webinars or watching Wimbledon, each valuable in its own way. Thus, standing firm on prices requires faith but is often the correct strategy.

Therefore, if faced with the demand for compromise beyond their point of comfort, freelancers should remember that every choice carries an opportunity cost. It may help them make the decision that provides the greatest probability of a successful result, however one defines success. As they say in Hebrew, if you are not for yourself, who will be?