Here is a principle that follows from the last blog post:
Never discount your fees. Do something for free, or at full price, but don’t discount. If you discount, your “discount” will become permanent as you instantly lower the bar for your clients. Now they will expect your discounted fees since they have become a “loyal client.”
If a client doesn’t have the budget for you, then reframe the project, phase it out, or ask them which part is least important to them. But don’t discount.
Be strong. Stick to your fees. Then be flexible on things like payment terms and project structure.
For small projects, as the last entry demonstrated, it can be an excellent idea to give away some work for free (especially, and perhaps only, for a long-term loyal and good client). That way, they know it is a favor. In contrast, clients don’t perceive a “discount” to be a favor. If anything, they wonder how much money they left on the table by failing to negotiate harder with you before.
Discounts bad.
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I don’t agree with this at all. I’ve given discounts to a number of people, for a variety of factors. Sometimes I make mistakes and give a discount on subsequent projects. Sometimes a new client was referred to me by a mutual friend and know I can give them a deal. Sometimes I cap a project at a certain price limit because I like the client, want to give them a break, and it’s an interesting project.
I have never, ever gotten the impression from a client that they thought my discount was showing them how much extra money I might be making otherwise. Usually they’re excited about it and enjoy working with me all the more. I get a lot of repeat business, because I wheel and deal. If I was totally inflexible about my pricing, I would have lost several good jobs.
Jared
March 2nd, 2006 at 7:48 pm
Never say never, but Andrew has a solid point. I rarely give discounts. By rarely, I mean I don’t give discounts 99% of the time.
There have been a few times where I felt it was warranted, but even then I try to offer limited scope or something else instead.
March 2nd, 2006 at 8:09 pm
Opinions are opinions, and I don’t agree. We turned over 7 million last year, and used discounts quite a bit. It really depends on your market, what you do and how you interact with your shoes.
March 2nd, 2006 at 8:27 pm
Lunarpages.com: I host many of my sites with you. I will be sure to contact customer service right away and stop paying regular rates! Thanks for the tip!
Andrew
March 2nd, 2006 at 8:33 pm
haha… touche ;-)
March 2nd, 2006 at 8:52 pm
Free bad.
You devalue your work. If you get bad service at a restaurant, they may comp (discount) part of your meal. Never give away your core service/product. Talk about the ultimate “discount”
March 2nd, 2006 at 9:29 pm
Think people are missing the point. Discounts lead to price wars which is something that needs to stop in web development. It is not business to compete on price – only desperate fools with little or no quality go there, others are dragged into it to stay a-float. I’m working with a client at the moment who does not want to display prices on his web site, he doesn’t want to go there.
As for free work. No. Sorry Andrew but I got caught in a circle of giving and giving and giving away free code. Now I’m in an awful situation of trying to get my client to get use to paying again. One favour will turn into another and another if you are not careful. I’m not the strongest person so I suggest most people not to give away things for free. Maybe over time when you learn to spank clients back into line effectively.
Money == Good
Discounts == Less Money
Less Money == Not Good
Free Work == No Money
No Money == Bad
Lesson Learnt, Money == Good, charge for it :)
March 3rd, 2006 at 12:38 am
Andrew:
You are right again. I owned and operated a video production company for thirteen years. I learned the hard way that ANYTIME I discounted my services, the client ALWAYS expected a discount on future work. I finally learned that it was better give away free stuff, rather than drop the price.
It was cheaper to give away 50 videotapes (my cost of only $50) rather than discounting 10% on a $7,000 video production–that is, $700 of hard earned profit left on the table. The perceived value to the client for the video copies was at least the same. Hey, everybody likes to get something free. I made more money. Everyone was happy.
Add value. Throw in a couple of extra royalty-free images or one or two graphics. The client’s perceived value will be much greater than your cost. It’s better to give them $25 in added value rather than discount even $100 off of your services.
Estee Lauder built a huge cosmetics empire by giving a “free gift with purchase.” She never discounted. She became one of wealthiest women in America.
March 3rd, 2006 at 1:45 am
Over the past 5 years, I kept one of my first clients (ok, several, now that I think of it) at a lower hourly rate than more recent clients, partly because they were “originals” and partly because they were “used” to the old rates. During the last year I realized it was such an extra headache to do this, it devalued my work, allowed the client to be more demanding with everyday stuff, and would be a problem if she recommended me and told someone the rate I was charging. It also encouraged her to send me multiple revisions ( in discrete chunks of course ) while she had no idea what they were worth. I bumped her up once, and then (after hearing no sqeaks from her) bumped her up again to my 2006 rates – actually quite a jump for her (triple!). She did ask me to provide estimates in future, but otherwise no problem. In fact, I did mention to her that her site was simple enough that she could get someone local (she has recently moved) to do her updates – even a student – but she *refused* to switch “unless I outright fired her” :-)
I agree with the “no discount” policy – and in future I will add “freebies” if necessary. These “freebies” or “extras” will be clearly marked. Hopefully it will avoid problems when someone wants to get a discount for passing up a freebie! One site that has helped me with deciding to do this is clientcopia.com.
March 3rd, 2006 at 4:44 am
I’ve got to disagree.
I think discounts (in the web development industry at least) work as long as they are applied correctly. I’ve applied discounts to a couple of clients and so far it seems to have helped me in retaining their business.
My tips on using discounts are ….
- Use them sparringly (or else clients will start to wonder if they should really be paying the normal rate)
- Try to use them on parts of a project not whole projects (that way they can see the discounted rate and your actual rate billed at the same time)
- Be clear why you are giving the discount ( Loyalty, Good behavior :], references, fixing something you broke, special occasions etc)
- Try to use them with more established clients (newer clients get spoilt too easily).
Think about it, how many times have you been swayed by discounts in a purchase. Sprint just gave me 1000 anytime minutes for $40 for being with them since 2001 … I plan to be with them for another 5 years because they recognized my value to them as a subscriber to their phone service. Why shouldn’t this work for your business?
March 3rd, 2006 at 4:49 am
I agree with Andrew on this one. Discounts are generally a bad thing, certainly in a business where we tend to measure everything by the time it takes to complete the job. In my early days, I let clients haggle on price and gave discounts simply because they asked for one – the result was the assumption that my prices were always up for negotiation, and that they were inflated to start with.
These days, I don’t get involved in price haggling at all – in fact, I simply ask the client for their budget and we work out the best solution I can offer within that limitation. This way, the price is what the client says it is and it just comes down to value for money.
March 3rd, 2006 at 6:00 am
I am not sure if I a agree. I sometimes offer discounts to make the client feel important, I don’t use discounts for pricing wars. I only include the discount at billing time, not during negotiations, and I only offer discounts with a solid reason for doing so (it took less time than predicted, or something like that). What I feel it does is state that my rate is xxx and since you are a good cliente and this job went smoothly i will give you a discount. By doing so I am making my ‘normal’ rate be known and adding value to the customer by ofering a one time discount. In my opinion getting a client acustomed to free stuff is as bad as getting them acustomed to discounts. At least with discounts you will still receive some compensation.
As far as free stuff leading to more work, I have learned that a client is only as loyal as his wallet will allow and they may be sad to let you go but they will do so if the bottom line dictates it.
March 3rd, 2006 at 8:02 am
Giving something away is merely a 100% discount, and could be more detrimental than a simple discount. It’s just human nature to want “someone for nothing”, and once you do that, the client will expect it in the future as well. I see nothing wrong with discounting your fees for a large volume of work, it’s how business is done in America. For example, a large ecommerce house negotiates a shipping fee with their vendor, and pays less than your joe on the street that’s shipping a handfull of packages.
March 3rd, 2006 at 10:34 am
I get a lot of repeat business, because I wheel and deal.
March 3rd, 2006 at 12:07 pm
What I feel it does is state that my rate is xxx and since you are a good cliente and this job went smoothly i will give you a discount.
Media
March 3rd, 2006 at 12:09 pm
It clearly depends on the pricing you use for full prices. I wouldn’t follow this if I were you.
March 3rd, 2006 at 3:48 pm
I agree with the general idea of not giving discounts for the same amount of work.
We sometimes give discounts to clients on approval of the project before certain date. If we have excess production capacity, this helps them speed the decision making process and keeps new projects coming on time.
Anyone had any success with this?
March 3rd, 2006 at 3:58 pm
No matter what you do, just do it consistently.
March 3rd, 2006 at 6:14 pm
very few times that i’ve backed down from a quote i’ve made and i actually frown upon a client who has the nerve to ask for a lower quote, or a discount; i frown because i quote at a more than reasonable rate based on what is required by the client;
not my fault that a client cannot understand the finer implications of what they want done, nor the time frame required for me to do it; as for a client making the assumption that they could have got something for a cheaper price then that isn’t the case with me since i make marginal profit anyways…
but soon it’ll be april again and the start of a new tax year… time to up my rates again, and god help any ne who complains about the amount i charge…
March 3rd, 2006 at 7:24 pm
I’ll add this:
Your clients will RESPECT you when you stand your ground and don’t come off of your price. Once you discount, you are marked as a sucker.
Learn to walk away. Over the years, I’ve figured out that clients that try and hammer you over price will never be happy; they are cheap skate, bottom feeders always wanting something first-class for nothing.
These clients are a royal pain in the rear. Don’t be a sucker. Let some other fool put up with their trouble. Seek out a better class of client.
March 4th, 2006 at 12:09 am
I must admit you’re absolutely right.
March 4th, 2006 at 7:05 am
Hi Andrew,
One of my main “products” is to sell advertising spots on my websites. I often offer a discount if I can get the advertiser to pay upfront for a full year’s contract. I generally charge monthly. I offer the discount because it’s a great benefit for me to have all the cash upfront, I have the use of the cash in advance, and I have that client locked into a 12 month contract and don’t have to chase payment every month. Are my discounts bad for me too?
March 4th, 2006 at 5:09 pm
Discounting for a valid reason is okay in my eyes – like peterdavis’ situation where he and the client both benefit from the discount situation – i.e. peter gets lots of cash upfront and saves billing hassle, while the client saves a little money over the course of the 12 months.
The problem I see comes from clients who expect a discount for no other reason than ‘they ask for it’. Nice try, but no dice – if you can’t afford it, let’s re-assess the spec – or you are of course welcome to go elsewhere. There has to be a clear and mutually benficial reason for giving a discount – just dropping your prices for no real reason opens up a whole can of worms.
March 5th, 2006 at 4:24 am
Amen!
I actually set my prices regarding the two following rules:
1- The experience i got and get everyday, and that time
learning and searching no one will pay it for me.
2- The time a project may take.
The fees aren’t negociatable! :)
March 6th, 2006 at 6:26 pm
petertdavis,
In your case, the question is a financial/risk one. How much of a discount do you take? The math turns out to be interesting. Say you give a client $12 off on a $10 per month contract. You are basically financing them to the tune of 12/120, or 10% (actually it is more like half that, but let’s assume a one-time payment at the end of the year vs. a one-time payment up front).
That’s okay because in exchange you are reducing your bad debt plus signing some contracts you might not have otherwise signed.
But suppose the discount turns out to be 20% or 30%, in a world of 4% interest and 7% overall stock market returns (maybe). Then you are not only giving your clients too good a deal, but also showing them that you are desperate for money up front — which might make more savvy clients question your solvence.
But your “discount” is actually a quid pro quo: You are giving up something to get something in return. That is fine in my book. The issue comes from people who give up their price in return for no concession at all.
Best,
Andrew
March 6th, 2006 at 6:59 pm
Standard discount for a 12 year paid-upfront contract I’m doing 10% discounting.
March 6th, 2006 at 8:42 pm
I read elsewhere on sitepoint that you can use the following to your advantage on invoices (and you’ll notice it swings both ways)
pay within 7 days: 5% discount (price =$xxxxx)
pay within 8 – 30 days: 0% discount (price =$xxxxx)
pay after 30 days: 5% penalty per week (price =$xxxxx)
This kind of discounting gets tham to pay up quickly, saving you hassle, and also states clearly that you mean business when it’s time to pay up!
March 7th, 2006 at 4:29 am
I think 5% penalty per week would be illegal.
March 7th, 2006 at 10:46 am
I don’t give anything away for free even for friends (though I might decided after the work is done not to charge them) WHY? Because when it is free they have nothing invested and then scope creep becomes scope run and I wind up spending many hrs doing this or that tweak.. so I always set a price ..
As for discounts, I have discounted on a “new customer” basis and that has worked, but what has worked better is I charge my normal rate which is not cheap and then specifically outline what they will get for that amount. then I always do more than expected (though not more than I expected to do for the cost) (finish before set deadlines.. fix items that were not originally part of the contract) then they think I am the one that will go to the mat for them (which is true to a certain extent – I won’t be abused, but I will do more than the contract requires) and since the contract limits number of changes etc they are thankful for my extra devotion to their product and they use me again..
March 9th, 2006 at 2:34 pm
I have to say that I don’t like to discount services at all. Discounting or comping services will hurt your profits in the long run. I have personally seen this happen with clients trying to further deal an even larger discount. That being said, I do freelance work for local bands and small businesses who aren’t always able to pay what would be considered fair to most firms or established designers. The only way for me to “get my foot in the door” at this point is to undercut or wheel and deal.
I see both sides of this argument, understanding that “dealing” cheapens the industry, but how is one man supposed to compete with entire teams of established artists and coders? Clients understand that they are not paying for a team of people. As a one man operation I have no choice but to offer discounts and freebies or starve. I have a disclosure clause in my contract that is supposed to help stop the passing on of price information but as it stands right now I end up dealing anyway.
I’m sorry…
March 10th, 2006 at 2:22 pm
Discounting for pre-payment is always okay in business, and is definately acceptable practice. It does not send the message that you are “desperate for upfront cash”, as it is understood as a standard business practice. We all know that the value of $1 today is greater than the value of $1 in a year, so it won’t hurt you as much as you think it will to give a discount.
For simplicity, say the payments are $10, made once per month over a year (12 payments). You give a 10% discount for paying upfront, and the client does so. The PRESENT value of all these payments (totaling $120) discounted at 10% will be $113.75. This means your $120 in one year is only worth $113.75 in today’s dollars. That’s already only 94.78% of the value. So what discount are you *really* giving them? About 5.21%.
March 16th, 2006 at 12:24 pm