You’ve got this great client. Let’s call him Phil. You’ve been working together for years, and you think the relationship is pretty rock solid. And then one day Phil calls you out of the blue and says ‘Look, we’ve enjoyed working with you all these years, we’ve really enjoyed it, but times are tough. We’re gonna need you to give us a 20% discount going forward please.”
How do you react? Should you give him the discount to make sure you retain his business, in the hope that times will get better and you can put the price back up? Or should you say No and risk losing Phil’s business for good?
Being asked for discounts seems to be a trend that’s on the rise – and in my world, that’s symptomatic of the types of relationships we have with our clients (but more on that later). The other thing I’m also seeing is an increase in the number of times organisations themselves are putting pressure on their sales teams to bill lower, win work at discount rates or ‘buying jobs’ in order to keep mouths fed and just stay in the market.
The trouble in all those situations is that it’s a race to the bottom. When you offer a discount, you’re not actually offering a discount, you’re setting a new, lower price point in the market. It might be a low price point for your product specifically, but it might also be a low price-point across the industry. It’s a very dangerous strategy.
Whenever clients come to me and ask “What should we do when we’re asked to discount?” my answer is almost always unequivocally “Do not do it”. Now, if you have a very clear strategic reason for doing this and it’s part of a longer term strategy, my advice to you is “Do not do it”. You’re setting a new price point in the market. I can understand the short-term pressures and I can understand the drive for revenue, but actually revenue isn’t important in a sustainable business. Profit is important.
So here’s what I recommend you do when you’re asked for a discount, or you’re feeling pressure internally to ‘buy’ work. First, make sure you have a long term strategy around your pricing and profitability. Then what I would suggest you do is stick to your main price on your main offering and on this one occasion offer them something free. It’s a one-off freebie, and that is a very different position in the market than offering a discount. The net position is the same, but your client sees that this is the true price for that item and you’re just giving this one particular thing free on this one occasion. This is a very, very different position.
So, please, please, do not discount under any circumstances.
Once you’ve done this, sit down and run a strategy session on your client – about how you’re going to shift your relationship to a partner relationship. Because in partner relationships, clients don’t ask you for discounts. If they’re faced with financial pressures, the conversation they’ll have with you is more along the lines of “Times are tough. Can we talk about how we might be able to come up with a solution together to lower or offset some of our costs, or save some money?”
That’s a big difference to being asked for a discount.
This post first appeared on Keith’s LinkedIn page. If you’d like to comment or join in this conversation, please visit the post here.