In this session, Danilo discussed:
Links and resources mentioned include:
Welcome everyone. Today we're going to talk about what to do when clients ask you for discounts. I'll give you one distinction that will help you discount less and then we'll talk about when and how to discount without hurting your margins. At the end, I'll also give you three practical negotiation tips. If it's the first time you're joining, BCC bites are those chats we run every other week on different topics. I share a bit of what I've learned from, from working with micro consultancies, startup consultancies. And we close with a quick Q&A at the end. Right. So if you have any questions, put them in the chat and I'll try my best to answer them at the end. Let's start.
I think it's important that we speak the same language. So I I want to start with the definition. What is a discount? I took this definition from the, the Cambridge Dictionary. Discount is a reduction in the usual price of a product or service. Here's the thing: There are consultancies that will always discuss. If you pick the proposals and you put them side to side with your invoices, you'll see maybe 1 or 2 out of 10 clients did not get a financial discount. And this means the proposed price is not the usual one. You're not discounting, you're cutting price.
That's why it's important to make this distinction here. A discount is seen as both parties as a rare, is seen by both parties as a rare event. A special circumstance. A price cut is a new price level for the future. And today we're going to talk about discounts. It's easy to say never discount. But rare events happen and you will end up doing it. It's part of the game. So it's better to understand when and how to do it properly, right? Now, price cutting is not part of the game. It's highly detrimental for your consultancy. I will explain why in two minutes.
Let's move on to the first question: When to discount? I present you this maxim: "Loyalty earns discounts, not the other way around." I think that it kind of compiles, it puts together two important lessons.
One is, you don't discount to win business from new clients. Of course, We all hope new clients will hire us for multiple projects and will engage with us for a long time. That's why marketers and, financial analysts use the Client Lifetime Value to plan initiatives. You might have heard of that. If you're giving up your margins now, but will likely probably win them back later on... Is discounting that bad? And the answer is, it's not that bad. Except if you're discounting in the very first project for new clients. The first job must always be profitable, right?
And the reason for that is that your profit margins will almost always go down over time. You might sell larger engagements to existing clients. But consultancies, when we're talking about margins, they often see lower margins from them. That's why the idea of selling cheap to make up for it later is actually a delusion. You're really fooling yourself. A price buyer will still be a price buyer. So reducing price for the first engagement is not discounting, is price cutting. You can do it if you want, but be aware that the client you're giving a discount to, he or she will expect you to do the same for any other future services. You're opening a precedent.
If you find that there's a lot of price resistance among new clients, what can you do then? And, and the right course of action, at least based on my experience, is not to cut prices. But to design an entry offering, Design a service with a smaller scope of work that allows you to deliver quick wins, show how you work... And it can be priced lower than your main offering, right? So this can be a diagnostic, an audit, short workshops, training, etc. I mean, the goal is to make, is to make new clients comfortable with the exchange of value. Instead of pitching them an expensive engagement out of the gate, right? So remember, I think it's important to remember, discounts do not earn loyalty.
If discounts are not appropriate for winning new clients, when do you give them? And the answer is, they should be reserved for good and loyal clients when they go through a tough phase, difficult times, right? If a client treats you well, pays you well and it's a joy to work with, then giving a discount feels like a big "thank you." It's a way for you to, give a bit back. Right?
And here, there's an analogy by Blair Enns that I love. Which is: think of discounts as favors. We give favors to our friends, family, or someone we think that deserves them, right? Maybe they ask for a favor, or maybe we offer first a favor. But if someone is always asking for favors, then that person is probably neither a good friend nor a good client. Right?
So, it's important... when we say "do discount for loyal clients", it's important to ensure that those discounts don't become a habit. And there are two quick tips that I that I think are helpful here.
First, during your conversations, when you offer a discount and the client thanks you for it, gently hint that this is a favor that should not be expected in the future. OK? You don't need to be explicit about it. When they ask you for a discount, you don't say "no problem", or "that's OK", or "it's nothing"... You say, "I'm glad we can help. I know you would do the same for me" or something like this. This doesn't mean you will ask the favor back in the future. But this brings up the feeling of reciprocity. And, and this avoids kind of one party to be always asking and the other one always accepting, which is something that happens among boutique consultancies. Sometimes you're dealing with a loyal client and they're asking for a discount. And you want to, you don't want to damage the relationship, so to say. So you accept and you suffer in silence. And they ask again, and you say "OK, no problem", and you suffer in silence. "Why did I give the discount?" So whenever they ask and you provide a discount for loyal clients, uh hint, gently hint that this should not be expected in the future. I understand that there's a special circumstance here. I'm glad I can help. And I know, I understand that when we also need your support in the future, you will be there for us also. So this brings up a feeling of reciprocity and avoids this kind of unbalanced...
unbalanced ratio of asking and giving, right?
The second tip is more explicit. Which is document any discounts on your proposals and your invoices. If you only show the final number, it will become the benchmark.
It will work as an anchor for future work. So instead, and this is really easy, just show your total fees, add a line titled "discount", "courtesy discount" or anything like this. And then you show the final discounted fees. This not only avoids devaluing future work, but it also works as deterrent in case the client asks for a discount again. You can, you can point them out to the last invoice and remind them, "Ok, you already got a one-time discount in the previous project."
Now let's get to the core of our chat today. What do we do when clients ask for discounts? How to address it without actually reducing price? There are a few ways you can address a request to cut price without actually doing so. Let's talk about the main ones.
The first one is confidence, belief. You all know that consulting services are not only intangible but they are credence goods. These are services whose quality is difficult or impossible to assess even after the purchase, right? Because clients don't have enough expertise to make an evaluation, an accurate evaluation. So, in this sense, consulting is a lot like selling legal advice or medical support. How do you know if your specialized doctor, for example, is really picking the right treatment? At the end of the day, it's a matter of trust, right? And so it is with consulting. Even when we can identify quantifiable KPIs to measure success, clients often don't know how much of the service was really needed, right? So value is subjective, just like a large part of your price. The more trust clients have that you can solve their problems and reduce the risks well and quickly, the more they will be willing to pay.
What partners often forget though, is that this works for both parties. If you don't believe in the value of your services, you will always tend to cut prices. Ask any sales manager and they will confirm that some sales people, they are always talking about price. I mean, why they need to compete on price. How they lost because of price. Why the price is not right. But the best sales professionals actually, they almost never talk about price. They talk about a product or service. But, I mean, most importantly, they believe they can sell. They have a higher self-esteem, self-confidence. They lead with confidence instead of fear and scarcity.
So that's the first alternative to cutting price. Simply work on your mindset and believe in your price. It sounds silly but it is true. If you don't believe in your price, if you somehow think that you are overselling yourself, prospects won't even need to ask for it. You will end up cutting prices in every negotiation conversation yourself. They won't even need to ask. You will cut it for them.
The second alternative here is offering terms. And few boutique consultancies do this during negotiation conversations. I think that's a pity because it can be very effective. And this is especially true if you work with smaller clients, smaller organizations. Sometimes, the reluctance comes not so much from lack of demonstrated value in your service, but it's more about liquidity. If the client says, for example, "we can't afford this", you can simply ask, "OK, is this about value or about cash flow? Would it be helpful if we try to put together a payment plan for you?"
And of course, there are some precautions that you might need to take depending on what and for whom you're selling to. So if it's a new client, or you would be doing a lot of work at the start of the engagement, then it's wise to ask for a bigger upfront payment. But it can still be a very effective alternative to discounting.
If you offer different terms, I think it's also important to remember the saying: "You can have your price and my terms, or my price and your terms...
but you can't have both." Right? I don't know if you've heard this. I love the saying. Of course, you don't use this blunt language to communicate it, but it's good to remember that you don't need to give concessions on both. OK? It's either price or terms.
Which takes us to the third alternative to cutting prices: Remove value through smart trades. The client says, "we can't afford it." You ask, "is it about value or cash flow?" and the prospect says, "it's not about cash flow." The prospect can't or is not willing to meet your price. If you want to make it work, you can cut price...
as long as they also give up some value.
Good negotiators will try to reduce your price without taking out value. Which means that they're getting more for less, if you think about it. What you need to do here, and that's what we call smart trades, is to find a new solution that can be sold for less, but reducing the scope of work so that you get to keep your margins. They can pay less, but they will also get less value out of it, right?
You will almost never face this challenge here if you present a set of three different proposed solutions to clients. That's what we suggest as a process for consultancies. It improves your win rate. It's more consultative. When you present only one solution, one price, then the prospect's feedback is either a yes or a no, right? But when you present three different options, you open up the possibility of discussing trade offs, you can anchor price higher, and so on. I'm afraid we don't have enough time to talk about that today. Ideally, you want to present more than one proposed solution, right?
But let's say you only presented one. You only presented one solution and the prospect is not happy with price. Your starting point to prepare for trades, It happens during the discovery. The discovery conversations. When you're asking about their situation, you're kind of uncovering their challenges, concerns... And you're also kind of finding out ways to reduce risk.
So, for example, let's say let's say your prospect needs help to adopt a new CRM system. Your proposal includes selection support, integration with other current systems, and training for the team. If they mentioned, during the discovery conversations, that "Well, integration with other systems is not that important...", then you could suggest removing that from the scope of work when you're thinking about smart trades. "We can reduce the, the the price a bit. But then we're not going to work on an integration with other tools. We leave that for a second phase." Or let's say during discovery conversations they, they said, "there's not a hard deadline for the implementation." They're not in a hurry. What you could also suggest is, "Let's take a slower pace for the project", which means you will need only two people instead of three, for example.
These are examples of smart trades. You're using the information that you gather during discovery to come up with different solutions with a smaller scope of work, that allows the prospect to pay less for them. I think that too many partners think that negotiation is all about making concessions. And it's not. You need to walk into every proposal discussion with at least a couple of trades in mind that could add value for the client and you. So you're either reducing things from the scope of work, eliminating some of the deliverables. Or you're adding something else, you're changing services. Whatever it is, it's important to have those traits in mind.
The last alternative to cutting price I want to talk about here is: Walk away. If you can't find a win-win agreement, you need to walk away. This is the price of being a professional. This is the price of being a trusted advisor. You need to protect your reputation. You need to protect your positioning. And your client's trust, by negotiating to benefit both sides, right?
People are afraid of walking away because they think it's the end of the relationship. But it's actually the opposite. If you think about it, if everything up until that point was right but the price, then walking away gives you a chance to re-engage in the future, right? There were many times, in my own consulting practice actually, where I could not find a win-win agreement. I walked away. And the prospect reached out a couple of days later with a new idea. A new proposal on how we could make it work. And sometimes, you might also be dealing with poker buyers, buyers who use negotiation conversations to bluff and see if you're willing to cut price. So walking away is not the end, right? Maybe the timing is not right, and you will re-engage in the future.
But key here is, if you're not willing to walk away from poor fit prospects and unprofitable engagements, then you are self-sabotaging your practice. You will regret it later, because you will look at your consultancy and you will see a bunch of stressful and cheap clients that, you know, only, only bring you stress, you're not making good margins on them. So, You need to walk away.
Now, before the Q&A, I want to close this with three negotiating tips.
And the first one is, don't negotiate against yourself. This is probably the most common phrase in all negotiation books and courses and training. Don't negotiate against yourself. And it's good advice that most partners ignore when the time is right. Whenever you, you have finished exploring the alternatives to discounting and it's still coming down to price, you should never ever try to guess the price they want. That's the lesson here. You ask the client to name the discount. So you say, "OK, I understand this is a special circumstance. This doesn't work, this doesn't work, this doesn't work. I understand you would need a small, one-time discount. What amount are we talking about? What amount would be helpful? How much are we talking about here?" And very often, they will ask for less than what you're willing to give. Very often. So don't negotiate against yourself. If they want too much, If they ask for too much, you can always counter later, right? But ask the client to name the discount.
The second tip is negotiate only once. This is important... and I see there are some of you here who I know are selling to larger companies. When you negotiate, you need to be sure that whatever you agree with your prospects is final. And partners, they often forget that. When a prospect asks you for a concession, you think this is the last obstacle. If you're dealing with trained negotiators, this is not true. They will present one concession. And then another one. And then another one. And every time you will you will think, "OK, this is the last thing that's missing. This is the last thing to sign." You agree with a financial discount and they come back a few days later saying, "wait, we need longer terms." You agree with the terms and they come back and say, "Ok, we'll need to include an extra deliverable here." So responding to to requests one at a time is not smart.
Before you agree to anything, you should try what it's called a trial close. So you can say to the prospect, "If we were to agree to split the fee in four payment installments, as you ask, then do we have an agreement or is there something else in the way?" And wait for them to drop everything. If they say, "yes, we have an agreement. If you can do that, we have an agreement", then still be aware with trained negotiators. You can say, "Right, then send me over the agreement. I'll take it to my team and I'll see if I can get it signed." Wait for the agreement. This is super important for those of you who are selling to large companies, and need to deal with procurement people. Don't assume that whatever they're asking is all that is missing.
The third tip here is prepare a "sweet" trade. Here's the deal. The final concession, when we're talking about negotiation and discounting, the final concession should never be on price. Think about it. What could send the worst message to a new client? If we're talking about... and if you're willing to position yourself as a trusted advisor... A trusted advisor should put the relationship before any financial transaction, right? This is the most important trait of a trusted advisor. He values more the relationship than any financial transaction. So, in this sense, if the very last conversation before you start the engagement feels like, "it's all about money." How do you think that the prospect will feel?
And that's when the sweet trade comes in. So the sweet trade, it's a valuable non-monetary concession that you can make that would give the prospect a kind of a small and satisfying victory at the close of the deal. At the very end of the conversation. You don't come up with something in the moment. You prepare a sweet trade in advance and you keep it hidden. You keep it in your back pocket. When you hear them say, "There's only one last thing...", or you feel like they're on the brink of signing but are still not 100% happy, then you present it. It might be adding an extra workshop for the client at the end of the project. It might be, "You know what, I'll commit to deliver everything one week earlier." If you offer training, coaching, "you know what? I will increase the frequency of calls of our coaching calls." So again, it's non monetary but valuable. This is a sweet trade.
Just to be clear, it's not a gift, You don't offer them for free. There's nothing for free here. You add them to your smart trades as a way to overcome any last requests. And this is a great way to close the deal and kind of begin the engagement on a good note. Because the buyer feels like they got an extra, unexpected win and they're less likely to change idea after shaking hands.
That was it guys. Let's open for questions. There's a question here by Chris.
"I'm pitching to a large organization, and the executive I was in contact with asked me to continue the discussions with the purchasing people. How can I avoid wasting time and being pressured by procurement?"
Thanks Chris, for the questions. This is a more tactical question, right? Of course, I would need much more context on your specific situation to give you better insights.
But I'll try to answer the core of the question. Some people say only deal with the decision maker, but that's naive. If you're speaking to someone, and your buyer delegated other people to discuss and negotiate the deal, then you can't ignore them. You need to work with them while maintaining this link with your contact. With the executive, with the buyer. So you can't escape.
If you're selling to larger companies like Chris, sometimes your prospect might ask you to deal with the procurement department. And if that happens, the most important thing you need to do is to help the prospect retain his authority. You work with procurement, but you keep the prospects involved. And here's an example.
Let's say, let's say the prospect says, "Thanks Chris. I really think you can help us here, but at this point I will need you to kind of work this through the procurement department. They take a look at all the consulting agreements. I know it's not nice but that's how it works." How would you reply? Feel free to drop your answers here in the chat. Remember you need to help the executive retain authority and keep him involved.
So here's how I would reply. I would say, "No problem. I have to work with the procurement groups all the time. That's how it works. But just just to clarify here... Who is signing for the project? Is it you, or is it someone in procurement, or someone in corporate?" And then the prospect might say, "No, I sign for it. It's coming from my budget." Then I would say, "Ok great. Then I'll send the proposal to you. I'll copy procurement. I'll share everything, all of the documents the procurement asks. I'll share as much information as I can. Sometimes they ask for things that I don't have or I can't supply, but I'll cooperate with them as much as possible. And if we run into any roadblocks, if we start having any kind of problems, I'll let you know so you can give them a push. Ok?"
So, this works if you are really speaking to an executive. If you are really speaking to the decision maker, You're helping him retain authority and you're keeping him involved. So if he wants the project, if he wants to hire you and there's a clash with the procurement team, he can override them, right?
Answering your question, Chris, "how can I avoid wasting time being pressured by procurement?" You can't avoid having to deal with procurement. That's the cost of selling to larger companies. But in terms of pressure, I don't think you... if your point or points of contact are the executives who can override procurement, then you should bring them to your side. Keep them informed and they will help you to avoid this kind of pressure. Or to at least remove some of the pressure that procurement people can put into you.
There's another good question. I want to answer even if we're over time here. Question from Cheryl:
"I'm also selling to large companies. Should I negotiate with the decision maker or the procurement department?"
Good question. And the answer for that is, it depends on how your sales conversations happened.
One of the golden rules in sales is you stop making concessions once you have won the business. OK? You stop making concessions once you have won the business. And the difficult part, at least when you're dealing with, with large companies, is to know when you have won the business, right?
So if all of your conversations happened with an executive... Let's say you had 1:1 discovery conversations to talk about his needs. You discussed value. You discussed price. You discussed budget. You presented solutions. You resolved concerns. If you made it all the way through the proposal and the procurement people didn't show up, they did not get involved, then it's highly likely that you have won the business. That the executive you're speaking to, the decision makers, they have chosen to hire you. And now it's procurement job to kind of get the best price they can. Try to negotiate. They are trained to, to ask for concessions, right? So lower price, longer payment terms, IP rights... Whatever it is, they will keep asking concessions until you say no. So if that's the case, if all of your conversations happened with an executive and procurement didn't show up until the proposal, then you should start with "no". You say to procurement you can't change the line in in the agreement, in the proposal.
If they keep you waiting, then you keep them waiting as well. And if nothing happens, just like I explained to Chris, reach out directly to your point of contact, to your executive. And then ask for help to get it unstuck. Say, "I feel like you need to give your procurement people a call. You know, they're just, they're tied to their standard rules there. We both want to start but I think you might need to give them a push here." If all of this doesn't work, then you can consider using some of the ideas we talked about here like making smart trades with the procurement people.
Now this is my recommendation if procurement gets involved late in the process. But it might be the case that procurement get involved early. For example, if you're if you're talking to, to an executive, to a decision maker, and he warns you about procurement just as you're starting to discuss solutions. Or if he asks you to copy the the procurement people, the purchasing people on every email, for example. "They need to follow this." Then, it's a sign that procurement have a higher authority than your contact, and the whole decision will come down to price. You can't escape recruitment. Most of the procurement departments, they will end up deciding on price. And in that case, you should really think about... you should really stop and think if it's even worth going after this opportunity, participating in this kind of competitive selling process. I would need more context to give you a better answer, Cheryl.
Right. That was it. We're over time already. Thank you all for joining. The next BCC Bites, it will be in two weeks time. On the 9th of November, and we're going to talk about increasing financial security. So I'll talk about key KPIs and benchmarks that you should be watching in your practice. Probably some unconventional truths on financial management. And tips to make your consultancy more robust. Stay safe. Wish you all a great, a great end of the week.
Thanks for watching or reading. You can get more specialized and actionable growth insights for micro consultancies in our newsletter. Every Tuesday, you get one idea from Danilo, one quote from other experts, one number you need to hear, and one question for you to level up your consulting practice.
You can unsubsribe anytime