There Are Only 3 Reasons to Reduce Your Rate

Posted on May 7, 2016.

After reading this piece from Jurgen Appelo, I started thinking about my own practice and why, if ever, I would negotiate my rates. Here’s where I netted out.

New clients are the lifeblood of any service provider. They put food on our table, help us hire new colleagues and allow us to do work we love. Inevitably, during the courtship phase of a new client relationship, the topic of price comes up. And, as day follows night, a request for a discount is sure to be next. It’s tempting to reduce your rate to get that new deal. This could be a new anchor client, right? Maybe we do it “just this once” and then not for future engagements? The rationalization is seductive.

Here’s the catch: The FIRST rate you propose to your new client will always be the HIGHEST amount you’ll ever get.

No client is going to come back to your first proposal with, “Oh that’s far too cheap, we’d like to pay you more.” They’re always going to try to negotiate a lower rate. When this conversation rears its head (and it will in almost every negotiation), there are only 3 reasons why you should ever agree to reduce your rate:

  1. You’re going to DO less work — Your rate is what you believe your time, your work and expertise are worth. As soon as you reduce it, you devalue your expertise and your service. If someone offers you less than what you’re asking for, you offer to do less work. If the client wants to pay 75% of your rate, you offer to provide 75% of the work. This way your rate stays in tact and it becomes clear to the client that reduced cost equals a reduced effort on your part.
  2. They’re going to buy multiple services from you — Depending on how you structure your business you may be in a position to sell multiple offerings to a new client. If they decide to purchase several of these offerings at once — solidifying themselves as long-term clients — then offering a bulk purchase rate is acceptable. Remember though, that this is the MOST you’ll ever be able to charge them so make sure you’re comfortable with this rate for the duration of the relationship.
  3. They’re going to pay the full invoice up front — The unfortunate truth of being in a client/vendor relationship is that getting paid is often a pain in the ass. Payment terms can go up to 90 days with some large clients and finding the right person in accounting to chase up when payment is late is an exercise in frustration. If you can get the client to pay up front, this entire portion of the relationship goes away reducing your stress and ensuring cash in the bank. In this case, I’ve found that offering a 10% discount is often a compelling enough value for the client to get the invoice paid up front in full.

Remember, your rate is a direct reflection of the value you provide. Reducing it, reduces your perceived value. At the end of the day, clients know that they get what they pay for. The reasons above are the only reasons I’ve found in the past 5 years that warranted a reduction in my consulting rates.