Ever been asked by a client to discount your price? According to Ben Paul, never say ‘yes’. Here’s what you should do.
It’s a very real problem for most business owners and managers. Sometimes it happens very early on in client relationships other times it happens a few years later.
Either way it is quite likely that one of your clients will ask you to “just reduce your price” for them.
Now let’s just imagine you’ve got this awesome client – Emma. You’ve been working with Emma for years and you’ve always thought you’ve got on well. In fact, when analysing your customer base this is one of your best and most profitable relationships.
You feel that you have genuine rapport and enjoy working together. Then, out of the blue, Emma calls you and says “Look, we’ve really enjoyed working with you all these years, but as you know times are hard. We’re going to need you to give us a 20 percent discount going forward.”
This is the call that most salespeople, account managers or business owners dread.
This 20 percent can have major impacts, not only on your day-to-day cashflow but also on your future growth plans.
Plus, you’re confused, it’s never been an issue before so why now? And more importantly, how should you react?
Should you just give Emma the discount to make sure you retain her business? Agree to the discount in the hope that times will get better and then you can simply put the price back up. Or should you say “no” and risk losing Emma’s business for good? After all, getting new clients is hard and finding one to replace her with little-to-no lead time will be difficult.
Being asked for discounts is commonplace. One of the causes of this may be how you go about winning new work in the first place. Sadly it is becoming common practice for companies to put pressure on their sales teams to offer introductory discounts, simply to win work.
I’ve even heard people talk about the ridiculous notion of ‘buying jobs’ in order to keep mouths fed and just stay in the market.
The trouble with this practice is that within your market, you are creating a price-driven buyer. This is purely a race to the bottom for your industry or sector.
When you offer a discount, all you’re doing is setting a new, lower price point within your company and perhaps in the market. Believe me, customers talk to each other and buyers move from company to company. This is a very dangerous strategy.
The real reason you were asked for a discount
The real cause of being asked for a discount is that it is 100 percent down to the type and strength of relationships we actually have with our clients. This request shows that it probably isn’t anywhere near as strong as you thought or hoped that it was.
So, should you say yes?
No, you shouldn’t. Whenever my clients come to me and ask “What should I do, I’ve just been asked to discount?” my answer is always “Say no, don’t just give the discount”.
Then they’ll tell me it’s a strategic client or a key account, they have to give the discount. My response is the same, “Do not discount.”
Yes, I understand their nervousness around potentially losing the customer and the loss of revenue – but revenue isn’t important in running a sustainable business. Profit is important and discounts kill profit.
So how should you handle this?
Firstly, be strong; hold your price: You need to have a long-term strategy around your pricing and profitability. This is key and you need to be confident in it, and know that it is around the correct market level and makes you the profit the business needs.
There are two key reasons why you shouldn’t simply discount:
• Once you’ve lowered the price it takes a long time and a Herculean effort to bring it back up again.
• If your client perceives it is easy for you to discount, then they may feel you have been ripping them off for the past few years.
Give something free just once: And I do mean just once. Yes, you may have some short-term pain as you’ve had to give a freebie or in effect a discount within this trading year.
Never reduce your daily rate or annual licence fee – otherwise that will become the new default price. However, your long-term price is still the same, future profits are secured.
Go and talk to them, but not about price: Move the conversation away from price, to levels of service, your relationship with them and what they’d like to see improved.
Remember when a client asks you for a discount it is symptomatic of a weak relationship, so now’s the time to go and address where that relationship can be fixed. Show willingness, be prepared to listen.
If your organisation is large enough send someone independent (i.e. does not work with the client) to get the feedback. If Emma doesn’t like your sales rep Bob, she’s unlikely to tell Bob she doesn’t like him, but she is more likely tell someone else from your company.
Make a client relationship strategy: One that gives you a clear plan as to how you’re going to shift this relationship to a partner relationship. Because when you stand side by side with your client and are their equal and trusted business advisor, they simply won’t ask you for discounts.
If they do have to cut costs, they’ll talk to you and ask, “How can we work together to try and lower or offset some of our costs, or save some money?”
That’s a big difference to being asked for a discount. You may even end up helping streamline their internal processes rather than discounting what you offer.
So when asked for a discount, never, ever, say ‘Yes’.
Ben Paul is the director NZ of The Business of Trust, and a director of 3 AND ME. He has more than 18 years experience in both New Zealand and the UK in business development and as a coach/facilitator/mentor. He can be contacted at [email protected].