I really love this topic, which is inspired by at least 50 recent inquiries we’ve received about fee structure and if/when to offer a discount. We’ve also received quite a few responses from you about what to do if a current client is asking for a discount, especially when this practice seems constant.
I think it’s clear by now that you (the readers and podcast listeners) know that I love what I do. And, I bet you’re currently loving what you do as well, or if not, then you’re likely working on this aspect of your life so that you can have that same freedom.
That being said this freedom isn’t going to be “free,” or rather always on the cheap. On this podcast I’ll discuss when to offer those discounts, but I also want to emphasize when not to offer them, and in some cases when it’s time to cut that client loose.
The upside of discounting your fees:
This section will likely be brief, but yes, there are times when a discount is applicable. The obvious time: when you’re just starting out or have limited experience in the area in which your client is hiring for. Simple. If you’re just cutting your teeth in a particular area then you’ll likely need to be aggressively price competitive with the more seasoned folks. It’s a simple marketing tool.
However, as your acumen grows with what you’re providing, then your fee structure should be commensurate.
Another reason to discount might be that a client you’re serving has a really big project or set of projects coming up that will keep you really busy. Should you discount on volume? Well, that depends. If you can set clear expectations that a revised fee is based on this volume or that you can set this up as a more comprehensive project (after you’ve calculated that it makes sense) then it may be beneficial, especially if these huge volumes of work keep coming, although there are some caveats that I’ll mention in a moment.
The pitfalls of offering a discount:
So as I said before, in the early days of your business one of your marketing tactics might be to undercut the competition, however this could be a slippery slope if you sustain this model.
The most important aspect to consider: You devalue the importance of your product or service.
If you’re constantly giving a discount or adjusting your fees, especially at your client’s request, then how can you honestly sell the value of what you’re providing? Also, if you’re pitching new clients who are leading the conversation with price, make sure to let them know before you discuss the fees that the value you’re going to bring to them will net them a bigger return in their lives or business.
In my opinion you do get what you pay for.
You’re an expert, or are you?
Are experts a bargain? Well, here’s a frame of mind you have to help your client get to. Going back to your valuation, If you give keep practically giving your services away, then you must not know what you’re doing, hence are you an expert?
If you can’t negotiate a commensurate fee, then a perception might occur that you seem as if you won’t be able to execute on the services your client is seeking. Not to mention if you can’t reimburse yourself or your team for your time and other overhead you might have, you’re not going to be in business very long.
Now you’re just looking desperate.
If you’re jumping at every opportunity that isn’t financially stable for your business, then you will look desperate. You know what? That desperation doesn’t really look good on you.
Let’s try some value on for size. Yes, that looks much better. Circle back around with your client to sell the value you bring to the table. Do your services actually help keep them running their own businesses? Do you actually help them grow their business? If so, then don’t hesitate to build on this notion.
You’re digging yourself into a hole.
If by now you don’t know what your bottom line is, then head back to your books and figure out what you need. Of course if you’ve been cruising along in a sustainable model and your head is above water in both money and time, keep that momentum. However if you cut those prices constantly then you may have to take on additional clients to make up the difference, or if you have to cut back hours for support staff because you can’t afford them, then you’re really going to find yourself taking on more.
You’ll be able to under promise and over deliver if you maintain a sustainable fee structure, which ultimately benefits your client.
Where’s your bargaining power?
This is that caveat I was talking about before. By providing a discount, you may lose any future bargaining power you have down the road in this agreement. Again, you need to be clear on the expectations if you do offer a discount, but this may also make it difficult to negotiate your full fee in the future because you could be setting up an unrealistic expectation.
Discounting for one client can also present you with a problem when you’re negotiating with another. If this new client is aware of your discount then they may expect the same fee structure. Word certainly gets around, so make sure that word is more along the lines of how much value you bring rather than how cheap you work for.
Do you really need this client?
If the client is leading the conversation with price or if they’re always asking for a discount and unwilling to negotiate, it may be scary to think along this line due to lost revenue, but it’s probably time to cut them loose.
If you find yourself in a constant cycle of bargaining and practically begging with a client to understand the importance of your fee structure, the energy you’re wasting could be better spent on a client that sees that value.
You’ll thank yourself.
By maintaining that fee structure that will keep you in business and doing what you love, you’re likely not going to experience much resentment from that constant discounting model. Remember that both before and during your time at the bargaining table to stay focused on your mission, remind yourself of your ideal target audience, and sell that value. If you have to walk away from the deal, then you’ll likely keep your integrity intact.