BUDGET NEGOTIATION: BEST PRACTICES FOR EFFECTIVE RESULTS

I once read an article about budget negotiations in video production, and it was odd to see in the comment section how many producers don't believe it's a part of their job. I occasionally come across such producers in real life — they normally request a quote without providing a budget range and disappear after the quote is sent out. Whether you are a producer, a marketing manager, or anybody else who is responsible for hiring and dealing with vendors on the brand's side, there are certain things you can do to make this process less painful and more effective for all parties involved.

(1) Have Open Discussions During the Bidding Stage

The first rule of budget negotiation is to be open about it — I wrote about the power of transparency last week and included some tips and examples, including budget-related matters. So, don't treat the budget like a hidden treasure. Why? For two reasons:

• You don't want to receive a quote that's significantly higher than your budget — it's a waste of time for everyone.
• You don't want a quote that is NOT aligned with your quality expectations — your vendor might assume that you expect lower-quality results, so they significantly underbid and then underdeliver because they didn't allocate the needed resources to meet your expectations.

Share your budget range with potential vendors right from the start so that you can achieve a sweet spot for both sides. This saves everyone time and ensures you receive realistic proposals.

(2) Discuss Proposals Above Your Budget

I think one of the most common misconceptions is that the first quote should either be accepted or rejected because that's the price of the service, and nothing can be changed. I've seen it many times, especially in post-production, specifically in VFX, CGI, and animation. That is a wrong assumption.

If you've received a proposal that's above your budget, discuss your concerns with the vendor. Many vendors are willing to adjust their bids and come up with different solutions to accommodate your budget while still delivering a high-quality result. Negotiation is a two-way street, and it's crucial that you keep the dialogue going and work towards the solution together.

(3) Assess the Value of the Proposal Together

Sometimes, a proposal may exceed your budget due to added value, such as enhanced quality, quicker delivery, additional revisions, etc. By discussing these aspects with the vendor, you can better understand the value proposition and make an informed decision or request adjustments.

(4) Be Open to Alternative Solutions

Vendors may offer alternative approaches, cost-saving strategies, or creative solutions to help you achieve your project goals while staying within budget. Work with the vendor to determine which elements are non-negotiable for you and which could be adjusted.

(5) Be Careful With Lower Bids

While it may be tempting to opt for the lowest bid to save on costs, it's essential to exercise caution here. Lower bids can sometimes be an indicator of potential issues down the line. Here are a few reasons why:

• Quality Concerns:?A bid that is substantially lower than others may indicate that the vendor is cutting corners or using subpar resources. This can lead to a lower-quality final product.
• Hidden Costs:?Some vendors may submit low initial bids to win the project but then introduce additional charges throughout the production process. These unexpected costs can quickly exceed your budget, so it's essential to understand/clarify what's included in the bid.
• Lack of Experience:?Low bids might come from vendors who lack the necessary experience or expertise even to estimate the project correctly. I once chatted with a random producer who admitted they won the job by providing the lowest bid but, eventually, couldn't figure out how to do the job within their proposed budget.

(6) Don't Re-Negotiate Once Committed

Let's say you've gone through the budget negotiation process, accepted the proposal, green-lit the project, and signed the agreement. At this point, it's crucial to uphold your commitment and avoid reopening negotiations. I'm talking specifically about reducing the scope of work here. Obviously, if the scope of work has to be increased, a vendor can put together an additional cost for your approval. On the other hand, reducing the scope of work is a completely different animal. Here are a few reasons why:

• Resource Reallocation:?Vendors allocate resources based on the agreed-upon scope. Reducing the scope can lead to resource imbalances, where vendors may have already assigned talent, equipment, and time to specific tasks. Altering the scope can disrupt these allocations and create inefficiencies.
• Cost Implications:?A reduced scope may not necessarily result in proportional cost reductions. Vendors may have already incurred costs related to planning, booking, pre-production, and other initial project phases. Reducing the scope may NOT lead to significant cost savings, making it an inefficient way to manage your budget.
• Vendor Relations:?Requesting scope reductions can strain your relationship with vendors. They may become hesitant to work with you in the future, potentially limiting your access to top talent and resources in order to protect themselves from similar situations.

Example:

• I once had a project where everything was agreed upon: scope of work, budget, and schedule. We gave the client a generous discount because they were supposed to keep our team busy for a considerable amount of time, and if you know anything about running a business, you understand the value behind it.
• After we signed the agreement, the client later came back and asked to reduce the scope of work significantly and recalculate the budget. I'll keep this example practical, so we won't discuss the legal implications and how this breached our agreement.
• The problem with this is that the resources for the job were already booked (because we had a signed agreement), and cancellation fees would have occurred on our end with all parties that we contracted for our client.
• On top of that, we already turned down other jobs that would have happened?simultaneously?(because, again, we had a signed agreement), so we would still have to meet payroll despite not having enough revenue coming in.

The point is, unless you agree with the vendor that the scope of work and, therefore, the budget is subject to change, that sudden "change of mind" can cause your vendor many issues, which will undoubtedly affect your project and your relationship with the vendor. Of course, we no longer do business with the above company, and we turned down the next project they sent to us.

In closing, budget negotiation isn't just about haggling over costs. It's also an opportunity to evaluate the expertise and value that vendors bring to the table. By recognizing that the budget negotiation process extends beyond numbers, you can make informed decisions that not only align with your financial objectives but also consider the creative potential, quality expectations, delivery timelines, and commitment of your chosen vendor.