"We are 'firm' on all fees and never discount."
~ Respondent to the RainToday.com 2008 Fees and Pricing Benchmark Report
Ask a services firm leader at an industry conference, "Does your firm discount its fees?" and you're likely to get a response that goes something like this, "We don't discount."
You're then likely to hear that due to the demand for the firm's services and the high level of its quality and service, the firm simply doesn't need to discount.
One alternative answer might be, "Yes, we discount. If the client pressures us on price, you know, you gotta do what you gotta do to get the business." While you might hear this, it's unlikely you will. Nobody wants to position themselves as the firm that needs to drop fees to win clients. And if a firm does discount, they sure don't want it public.
While firms might do it quietly, they do, indeed, discount. In the 2008 Fees and Pricing Benchmark Report, 1,811 respondents from five major professional service industries reported heavy discounting.
What percentage of firms reported that they discount their fees, you ask?
- 76% of law firms
- 66% of architecture and engineering firms
- 65% of consulting firms
- 61% of accounting and financial services consulting firms
- 58% of marketing, advertising, and PR firms
As much as firm leaders would like to avoid it, and as much as the consultants to services firms rail against it, firms discount. And discounting is likely to continue.
The question then becomes, what do you do when clients push back on your fees?
The glib answer is: focus on your value. It's trite, but true. If it's worth it to the client they'll pay for it. But when faced with price pushback, many are at a loss for what to do at that moment.
Here are four guidelines to follow the next time a client puts the price pressure on:
1 Don't backtrack: I was playing golf with a bunch of old friends last summer. One of these gents is an attorney who was speaking about his services with another old friend who runs a hedge fund. Without being asked, he got to price and said, "My fees are $300 per hour, but if you need me to, I'll work for less."
Here's an example of backtracking before even getting pushback. (I'd hate to see him in court, "Members of the jury, he's innocent! Unless, well, you don't think so. OK, we'll plea bargain with opposing counsel...")
Folks are tempted to backtrack when the buyer says, "But I can get it from XYZ provider at a lower price." At this point, many service providers give the indication that they're willing to negotiate prices.
Instead, acknowledge that other sellers' prices are, indeed, all over the map and leave it there - you're basically saying, "I acknowledge other providers' prices are lower than mine, but my fee is my fee."
Sometimes buyers might walk - that's a risk you take. Many times, however, you'll simply set the foundation for continuing the business development process at your preferred fee level.
2 Don't start talking cost structure: Imagine, for example, your firm is looking to win a $7k retainer. Some clients will ask, "Well, how did you come up with that price?"
The service provider then pulls out a scope sheet of how this person's rate is X, this person's rate is Y, and this cost that we have to pay every month is Z, so here's the fee. Heading down this path is a slippery slope and leads to nickel and diming here, there, and everywhere.
In Fees and Pricing Benchmark Report: Consulting Industry 2008, RainToday.com and the Wellesley Hills Group found that firms of various price and profit levels use retainer pricing. However, those firms that achieve premium prices and profit levels do not share the underlying fee structure nearly as often as the other firms.
Think of it like this: If you went to buy a car and asked what the exhaust system cost or how much the dashboard set them back, you would probably get laughed at. In the same vein, you should not lift up the hood simply because you're asked what your costs are.
3 Ask, "Which part don't you want?": Service providers are tempted to cut fees when they get pushback, especially for large deals. The logic goes like this, "Well, it's a $120k deal, but if we get it, we can get by with $110k and be OK. That would be better than losing the whole thing." So they cut their fees.
This is a bad precedent to set if repeat business is important at your firm. You'll always play the price-cut game at contract renewal time.
Instead, when a client is considering a $120k deal comprised of 5 major components, ask them which component they don't want? You might find yourself going component by component and, as the client realizes they want the whole thing, you don't cut your fee.
Also, going component by component forces the client to consider what it would take them to do that particular component of the work (if they could even do it). All of a sudden they realize how much they'd prefer to pay you to get it done.
4 Don't dismiss the buyer when they push back: I often hear this comment, "If they push back on price, we don't want them! Pushing back on price is an indicator that a client will be high maintenance or worse down the road."
Perhaps this is not the case. Buyers are often taught to challenge prices in multiple ways. Just because they challenge you doesn't mean they are bad people or are destined to be bad clients. It also doesn't mean they're challenging your value personally. (I've seen many service providers react viscerally and personally to fee pressure. Bad form.)
It often means they're trying to figure out how to engage you and your services. Some providers discount, others don't. They're just asking. Hold your ground and treat them reasonably in the process, and oftentimes they'll just come around.
Clients will, in the end, pay more for your services if they see you offer more value than the alternatives. And as much as you might disdain the thoughts, buyers will continue to pressure price, and service providers will continue to discount to win business. Follow these guidelines when you get price pressure, and you'll find yourself winning more deals at your asking price.
Mike Schultz is Principal and Founder of the Wellesley Hills Group, a management consulting and training firm focused on helping companies in the services sector to increase their revenue and profit. WHG specializes in both marketing and selling of services and offers a full suite of capabilities including sales training for consultants and professionals, marketing strategy development, and marketing implementation. Visit his websiteLink to original post