Providing discounts to clients might sound like a logical solution to ease their Covid-19-induced pain, but Ben Paul argues that it’s the last thing you should do.
I’ve heard a lot of talk from several business owners, and from those who manage and provide billable services to clients, of reducing fees post lockdown. Some have even talked about sharing their client’s pain and giving additional discounts during these testing times. It does sound like a very logical approach. However, it is absolutely the last thing you should do.
That’s not to say you shouldn’t explore ways of providing either additional value or reducing the service you provide. What you shouldn’t do is look at adding more discounts on to the work you currently have. The focus with the services you are providing from your point of view, is ensuring that the bills you send out, are paid. Right now, in the economic world of government subsidies, the phrase ‘cash is king’ has never rung truer.
However, your clients will most likely be looking to make savings on the bills they are paying, as they pull the lever of managing operational expenses to preserve their cash flow. So, what can you do, when one of your clients asks for a discount due the current economic climate? Below are a couple of approaches you can take when you are asked this.
- Formally review the service you provide them, with them.
Being asked for a discount gives you the perfect opportunity to review the services you provide your client. If you are not already doing this regularly, take the opportunity to do this now. Find out exactly what is going well for them, and if there are some parts of the service they don’t really require. This produces two critical pieces of feedback you can work on.
The first piece of feedback reinforces in your customer’s mind the value that your service is providing them. Having them articulate how you help them, helps them to understand the value you provide. It may lead to them rethinking their need to trim costs in relation to your service, and instead they will look at other areas of expenditure for potential savings. If it doesn’t quite produce this result, it will at least make them understand the need to agree a sensible outcome with you, that maintains your service provision.
The second piece of feedback is crucial in reducing their costs without you giving them a discount. If there are elements of your service that you currently provide that they don’t require, take them out. In doing so you’ll be investing less time and effort in providing the required service, which quite justifiably reduces the overall cost. In doing so, you have reduced the service, not discounted your rates. This is vital for your business model as when the economy starts to grow again, they’ll most likely increase the level of service you provide them. Which means you’ll be doing it at your existing and more profitable rates.
- Offer a small discount, contingent on an upfront part payment.
In this new normal, it is clear that cashflow is critical for all businesses and particularly the small business community. It is vital that the work you do is paid for. In a climate where bankruptcies and insolvencies are on the rise, it means, for you, the quicker your bills are paid the less risk your business is carrying. So just this once, you can perhaps offer a discount for an agreed period of time, to assist them, as long as you are paid ahead of delivering the service, at least in part.
To make this tactic clearer, let’s provide a theoretical example. Assume that you currently have a contract to provide your services to ACME inc. and at the end of every month you invoice them, in arrears, $10,000 for the services provided. Upon receipt of that invoice they then have 30 days in which to pay. More businesses will look to take that time before paying, in the current economic conditions. So, what you could offer ACME inc. is a 10% discount based on 50% up-front payment (on the original total amount), and the remainder is to be paid after the service is delivered. This means before you even start providing the service, you have cash in your bank. The breakdown of your two invoices would be: $5,000 to be paid prior to commencement of work. $4,000 to be paid once the service is delivered. I would also recommend that you have a capped period agreed in which this new arrangement takes place, and that at the end of it you will go back to the original agreement, or at least review it.
Whilst this is a discount, it does help lower the amount in dollar terms of the debtors your business carries. It also can help your client to save some operational costs in the short term. The example above is just an example, not an exact model. You will of course know more than I do about what exact level of discount your business can accommodate. However, it provides a framework and a tactic that you may find helpful.
Keep the conversation going.
It is more vital than ever, that when asked for a discount in these highly emotive times, that you do respond, and in a calm and composed manner. It may be a shock to your business, to be facing a reduction in income right now. However, it is your job to try to really understand why your client has asked for this. You will need to listen and empathise with them. Through having an open and honest dialogue, it is quite likely you will find a way to resolve this speed bump in your relationship, and you’ll find that you come out the other side of it with a much stronger one.
Ben Paul (below) is the director and founder of The BD Ladder, a business development and marketing consultancy focused on provided B2B service providers with practical advice that delivers results. He can be contacted at [email protected]
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