When work is scarcer and the competition is fiercer than ever, it can be tempting to try and win work at any price. I’ve often heard people saying that they are pricing to keep the lights on. It is concept that winning work, even at a loss, will keep people busy and in a job. Which when you read that, and even better I’d urge you to read it out loud, means that you are trying to stay in business by funding the work you do for a client rather than making a profit!
Clearly, this is the opposite of good business sense, yet it happens. The sentiment is certainly understandable, but even in the short term, turning a loss will not help keep people employed and in the longer term it can have real issues for both your organisation and potentially the wider industry.
So, let’s start with why discounting, cutting fees or running loss-leaders simply isn’t a good idea.
Why pricing to keep the lights on (discounting) is a bad idea.
Your discounted price is now the normal.
Let’s be honest, who likes paying more for something? Very few of us have enjoyed the experience of the global inflation of the last few years. Which means that your clients will not want or expect to pay more for the same service once the market picks up. In my experience, once you’ve lowered the price on something, it takes a long time and a Herculean effort to bring it back up again, particularly if the client has choice amongst a multitude of suppliers.
Your clients will see you as the ‘bargain’ option.
Who buys electronic goods in early November, after all Black Friday is coming soon, so most people wait and grab a bargain. This retail strategy isn’t a good option for a sophisticated B2B services provider. It also means that even if a client does want your service they will likely come back and ask for a discount. After all you’ve done it once, you’ll probably do it again.
You’re taking two steps forward and three back.
Winning the work, at a loss, assuming your client is a good payer will at least bring cash in. Great. However, if it doesn’t cover your costs, you are still losing money. The longer this monthly cycle persists the worse it will get.
So, what should you do when the market is unfavourable?
In my very first sales job back in the ‘90s I was told firstly “anyone can sell on price”, and that “selling on price isn’t selling, it’s giving it away”. That has stuck with me all this time. It means that whatever the market conditions, you do have to play a slightly longer game.
Double your relationship meetings
Look back at your calendar for the last three months. How many meetings have you had with clients or prospective clients? Try and get a weekly average and make it your mission in the next three months to double that activity. While I maintain that sales isn’t simply a numbers game, experience tells me that activity does breed success. Those individuals and firms that are most active and engaged in meeting their clients are the ones that have the most success.
How to act in those meetings
The aim is to be present in the market and explore how your clients are feeling and what’s important to them. Do not try and sell, people will see you as desperate. I understand this may well be how you’re feeling, but that’s not what people want to see. Your clients have a whole range of problems and it’s not their responsibility to keep you in business, so instead, take time to find out what their issues are. With multiple clients, you’ll need a clear strategy for them. Which leads me nicely to the next point.
Make a client relationship strategy.
One that gives you a clear plan as to how you’re going to shift this relationship to one where you both get great value from it. After all, 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.
But what if the client asks for a discount?
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?
Hold your nerve and 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.
Give something free just once.
You may experience some short-term pain as you’ve had to give a freebie or in effect a discount within this trading year. In the world of professional services maybe an exploratory client workshop could be a good idea. It needs to be something of value to the client but not your normal day-to-day service offer, i.e. where you make your money.
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, and future profits are secured.
That’s right follow the advice above and work harder on those relationships and have more meetings. The better your relationships, the more value you provide your clients, the less you will be asked for discounts.
Pricing to keep the lights on, will ultimately mean they are turned off for good.
I completely empathise with everyone chasing work in a tough market. It’s not easy, and being advised not to panic, while the right message, will often fall on deaf ears. However, if you can take a step back, think through all the options and focus on client relationship building strategy over simply discounting, you’re far more likely to come out the other side a lot stronger.