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#529: Think Twice About Discounting Consulting Services

Posted By Mark Haas CMC FIMC, Thursday, March 24, 2011
Updated: Thursday, March 24, 2011
I have been successful winning new work recently by offering discounts. I am assuming that once I become known to the client, I can go back to my full rates. Is this your experience?

There are several issues here, first of which is your conclusion that discounting rates constitutes a "success." It is more likely that you have landed a client who values discounts at least as much as your work. If they did truly understand the value you bring to their organization, you wouldn’t have had a discussion about cutting your fees.

Discount chasers can, and always will, be on the lookout for other discounts. At best, you should consider discount shoppers only for cash flow and not those clients for whom you can do your best work and grow your capabilities. Furthermore, you are likely to be resentful of having to discount your fees when, as a professional, you will still provide top quality service.

Second, don’t assume you can raise your fees once a client comes to know you and love you. For the same reason as above, your relationship is built on that discount, not on your full value. If you do succeed in raising your fees, then it is likely at the expense of resentment from the client at your new "higher" fees being paid for the same service.

Tip: If your fees are fair and market-based then you should focus on better explaining why they match your value, not send the message that you believe your services are worth less than your full asking price.

© 2011 Institute of Management Consultants USA

Tags:  brand  client development  fees  market research  proposals  reputation  sales 

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Comments on this post...

Michael E. Cohen CMC MBA says...
Posted Tuesday, March 29, 2011
In the Federal market place clinets routinely ask for and expect discounts. They are not discount shoppers; they are simply used to discounts as part of the negotiations process. Thye don't value discounts as much as your work; it is simply part of the landscape. Diascount shoppers is an insulting term for my clients. Also, I am never resentful at discounting my fees, as I always have the choice; no one is forcing me to discount.

Whether you discount or not, the idea that you somehow use discounted contracts for cash flow, and that you don't do your best work for them is borderline unprofessional. No one forces a consultant to discount. A consultant, if he or she is truly professional, puts for his or her best efforts regardless of the price or amount of profit generated. The approach suggested in the article reminds me of something a road service company told me concerning how quickly they respond to service calls. They respond quickest to those customers whose insurance pays the most for road service. We should not as professional management consultants function as road service companies.

Instead of focusing, as the tip suggest, on trying to justify your rates, focus instead on strucxuring your rates to allow for disocunts on ocasion for some clients such that you achieve both your monetarym, growth, quality and other objectives. Or don't discount if you can cahieve your objectives w/o doing so.

The idea of not doing your best work for certain lower rate clients is troubling. What are you going to say if someone checks that client for a reference and it is less than ideal? Say that you were forced into a lower uality effort because you weren't paid enough? I don't think the author really feels this way, given his high standards. He amy want to clarify how he really feels.
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Mark Haas CMC FIMC says...
Posted Friday, April 01, 2011
As the original post states, a professional always provides high quality service regardless of the price paid for his or her services. But if you work in an arena where you always or almost always discount your fees, then your "full" rates are not your real rates anyway. Furthermore, if you only have one rate for a variety of services, then you will be more often asked to alter your rates to match the client's perceived value of your services. This is why experienced consultants charge different rates for different services (facilitation, coaching, consulting, research, training, etc.). In the private sector, there are a lot (even more in tight markets) of clients who feel they can only use outside services if they get a "good deal." That's about the buyer, not the consultant, and sophisticated buyers know what thy need to pay to get high quality services. If the buyer can't afford the quality of services they want, some will try to bargain and others will just ask for what they can afford. I was referring to the few who think that it is acceptable to expect discounts from professionals.
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Jack R. Snader CMC says...
Posted Friday, April 08, 2011
If your services are viewed as a commodity, then perhaps you have the wrong view of your services. Think about the professional services you buy...physicians, legal, dental etc. Why did you select them?...because they gave you a deal? I would like to think you bought their skill and competence. Maybe you need to acquire more clients that pay for your high quality services. You might consider reducing the scope (or the value) of your services when cost is an issue, thereby lowering your costs to the client. Let them get started with you at a lower cost, then when they have confidence in you, they will expand their use of your services. If you quote an hourly rate, then no wonder they want a lower price. A project rate is preferred by many consultants who don't want to be lumped with others as a commodity.
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