How would you handle requests for an immediate aggressive billing rate based on the "potential" of future work?
A customer wants me to provide reduced billing rate by over 25% on the basis of potential future work. I want to avoid giving up immediate revenues in case the promised future work never materializes. I am looking for suggestions. I am happy to do a quid proquo as long as it flows both ways. Any thoughts?
I suggest looking at it from the other side. How can you do work and pay bills if you don't get paid until way later. Contracts are made to cover you in case the work never materializes like you mention. It's the cost of doing business in many cases. Find a middle ground that works for both of you.
Offering a discount establishes with the client what your real price is: it will overhang all future "potential" work with reduced pricing. I offer discounts only for committed future work, like a multi-month contract, where I am essentially giving back my reduced cost of sales due to the duration commitment.
Instead, consider using the coupon approach. The current work is done at full price under the agreement that 25% of the fees may be applied as a credit on future work. That shifts the risk - the customer still gets his discount, but only if the "potential" becomes a reality. Note that the coupon applied to amounts *received* not to amounts invoiced (or not yet invoiced). That "encourages" the client to pay promptly.
You've gotten some great answers from others and I'll echo some of those below ...1. Be aware of a client that comes out of the gate wanting discounts, period. I consider that a "red flag".
2. Be aware that the way you offer a discount can affect the way a client deals with you from there on out. If you play it wrong, the client can see you as desperate or they can start the relationship by not actually valuing your services for what they're really worth (you definitely don't want to be seen as a commodity). It also sets a precedent for them asking for other demands (and 99.9% of the time, they will).
3. 100% on first job and kick back on 2nd, 3rd, etc. could work, but 25% is still a lot off the top. Depends what the work is and if that 25% off on the future stuff is going to cut too much into your bottom line.
4. Retainers do work, but again, 25% is a chunk. I've gone up to 15% if someone signs a retainer for 12 months on on-going work.
5. However you end up playing it (if you don't walk away), definitely be sure to get a signed contract that spells everything out, especially the special pricing.
Make them have some skin in the deal. Charge normal prices but put in the contract that upon more work worth ...you will rebate back the discount on the first job.
Saying no to that means they just want a discount so dont fall for it.
Do your financial analysis..and create your own( 3-5 years out) proforma..If you can verify what you come up with and it looks promising, I'd take the deal , but require a % equity in the company, with a forward date buyout, plus the full retroactive and current/forward year billing rate. You will immediately see how confident the CEO is in the company success if he accepts. If not ..pass.
This is my own opinion and just based on my 40 years in the Financial Consulting/project funding industry.
hope I helped.. chuck kabis MRA, CMC-
there are a couple of things to consider here.
If you have positioned yourself as being A) valuable and B) unique, why would a prospect be seeking discounts up front?
There's a couple of reasons I can see. 1) The prospect is completely the wrong match for you or 2) You have not clearly demonstrated your value.
Given that the prospect already views you as a commodity (Evidence is they want discount) I'd avoid them like the plague as they will almost certainly nickel and dime you and mess you around.
I'd also take a look at how you are positioned in the market so that this doesn't happen again.
I hope this helps.
I would look at a promotional rate, but for a specific period of time. Promotion and Price (pricing) need to be factored into the what you offer and the 9P's of Marketing.
You are blending Price and Promotion to secure future business which may or may not be there. Your instincts may be correct or on target.
Reducing your rate because you want to do more business. But the trap is that you fall into discounting your rate and they may ask again and the bigger problem is again and again. Good luck.
I agree with Gee. But there's more:
-- 25% discount is too much. They are trying to get a contract employee. Do you want to do that? Do you have other clients?
-- My wife, an HR consultant, often gets client offers like this. She does not reduce her hourly rate, but she will offer a monthly retainer for up to a certain number of hours per month, if they give her a 6 or 12 month agreement. At any one time, she has 5 or 6 clients, so there's no danger of her becoming a de facto employee.
-- Unless you have only one client, you will come to resent your client that is paying you less, and will favor other clients. And you know dang well that this low-paying client will be the most demanding and toughest to satisfy.
-- If the client is not paying you the going rate for a person of your skills, they will use you for tasks beneath your skill level, which will bore you and be a waste of your time. My wife, as a senior professional in human resources, gets close to $200 an hour. A client says, "We also want you to help us with benefits, so you should give us a lower rate." Her response, "Hire a benefits person, and use me for only the areas that are worth my rate." She says no to many offers, but loves the ones she gets.
I avoid this by billing all my clients a monthly rate.
Hi Kenneth ~
What I do is offer a discount to startups and solopreneurs at the outset, with the understanding that rates will increase to usual fee after a certain period (i.e., once their business is on firmer footing.) The startups I've worked with have been grateful for the break, since it says I "get" them and the nature of entrepreneurship. This is somewhat easier to do with project fees (e.g., web content, blogs, etc) rather than consulting.
You might also want to consider basing the rate on project size: when you contract for x hours the fee is your standard rate, but at y hours they receive a 10% reduction.
Hope these ideas help!
How about billing the current gig as 100%, but offering x% reduction on future business, up to a maximum number of future commissions?