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When Clients Want a Discount
Date: Jan 2009
Especially in a difficult economy, clients may ask you for a discount. There are at least five reasons why a client will pressure you to reduce your fees, and you need to understand which of these is at the root of the discount request in order to effectively respond. I've named a client type for each of these reasons:
- "Red Ink": This client is under extraordinary budgetary pressure due to a decline in profits, and really is having trouble funding your work. Right now, there are a many companies out there which are in this predicament. In this case, try in earnest to structure your work to help the client meet internal budget pressures. Make recommendations for ways that your clients can become more efficient and productive in the way they are spending their budget for your particular service. One of the firms I work with, for example, was told by a large Fortune-500 company that it was cutting the budget for all external service providers by 50% across the board. My client spent serious time developing a very cogent business case which showed that the company could save more by consolidating around just a couple of suppliers, and they were able to retain the same level of fees while increasing their share of the company's total spend.
In the midst of one of the toughest economic environments in history, now is the time to be creative and flexible – without completely abandoning your economic model – as you work with cash-strapped clients. - "Competition Czar": Your client has solicited proposals from a number of your competitors, and says you are more expensive for what appears to be the same service. In this case you need to invest in a value-added proposal that illustrates how you are different from the competition. Provide multiple options in your proposal. Treat your prospective client as if they were already a client.
- "Bargain Hunter": This client always likes to dig around for the best deal, irrespective of who you are, the service you offer, or the degree of competition. You might satisfy this client's bargain-hunting instincts with a small concession on price or an extra piece of value-added work.
- "King Commodity": The client perceives your service to be a commodity or near-commodity, and buys mostly on price. You have three options: Avoid them, add value to show that your service really isn't a commodity, or lower your delivery cost and compete on price.
- "Chicken Little": This client likes to fret about how expensive everything is, including you. I've had a handful of these clients in my career. They value the work I do, but they love to make comments about my fees and how expensive I am. I suggest you sympathize but hold your ground. Describe the quality ingredients that go into your delivery, and frequently communicate the value you are adding. Emphasize that you are indeed best used for those issues where extremely high quality and thoroughness is required, and make a point of turning down some work that could be done more efficiently by someone else.
In every case, be sure to:
- Always link your proposal to the client's critical issues, needs, and objectives. · Clearly articulate the value of the work you are proposing. · Make an effort to identify what the client truly values about your proposal. You may have five elements to your proposed program, but it could be that two or three of them represent 90% of the perceived value.
- Respond to fee pressure by offering lower-cost options that restructure the work without destroying your profit margin. Propose doing less than what is in the original proposal, suggest that the client take on some of the tasks itself, or start with a small diagnostic phase.
- Talk about the integrity of your fees and don't cave in mindlessly. One senior executive said to me, "If I challenge an invoice, I actually don't want the firm to immediately knock 20% off it. If they do, it makes me think I should question every invoice, and then the whole billing process loses integrity."
- Propose discounts, rebates, or other pricing mechanisms that are tied to creating a larger, stronger relationship with the client as opposed to just cutting current prices.
- Reduce the client's risk of doing business with you rather than cut fees. For example, break a large engagement down into small pieces with checkpoints along the way.
- Don't chase down every lead or RFP – if you cannot invest the time to develop a highly tailored, value-added proposal, don't bother. That's hard to do in a difficult economy, but it's usually the best strategy.
- Because of the economic contraction, you may need to be especially thoughtful about how you set and structure your fees. The one approach I don't like is to simply reduce fees on a blanket basis because a client tells you they are suffering a profit squeeze. You know that they will not pay you a premium when times are good, so why should you give a deep discount when times are bad? However, as noted above, you may need to consider delaying your billing; providing one or two value-added services at no additional charge (producing an assessment of a particular issue, facilitating a workshop for the client, providing some training for in-house staff, etc.); agreeing to use more of the client's own people on an engagement; accelerating a project's timescales; and so on.
Finally, don't take it personally if you're asked for a discount. If someone questions your fees, respond with some thoughtful questions about his or her concerns and try to understand why the subject is being raised to begin with.
Andrew Sobel is a leading authority on client relationships and the skills and strategies required to earn enduring client loyalty. He is a consultant and educator to major services firms worldwide. Andrew is the author of the business bestsellers Clients for Life (Simon & Schuster/Fireside) and Making Rain (John Wiley & Sons). He can be reached at andrew@andrewsobel.com (Tel: 505.982.0211). http://www.andrewsobel.com
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