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Reducing Your Rates: How Low Should You Go?

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You send a great proposal, but now the client says your costs are too high. Should you reduce your rates to win the job, or should you stick to your guns and risk losing the project altogether?

Changing your rates on a client-by-client basis can be a dangerous game, so here are few things to think about before you take the plunge.

Times are tough

OK, so it's been a while since you've had a bite. The sales pipeline is looking a little empty, and just this once you feel you could drop your price just to get some money in the bank. Fair enough, but remember that business is a gamble and a full-fee paying client could be just around the corner.

First impressions count

If you quoted $1,000 but the client can pay only $800, then by reducing your rate at the drop of a hat you're basically saying that your first quote was excessive. You've just devalued your business in the eyes of your client. Not good.

Reduction breeds resentment

Feeling forced to drop your rates is not the best way to start a project. You may end up resenting your new reduced-rate client, grumbling every time they call, rushing their work, and prioritizing better-paying clients. If you do decide to reduce your rate, be sure to do it with a genuine smile on your face.

You need to prove yourself

Some clients ask for reduced, or even free, work, so you can "prove yourself." If you're new to the market, it might be worth doing a few reduced-rate jobs to fill your portfolio, but if you're an established business your proof should be visible via your body of work, testimonials about you, and your reputation.

You wouldn't ask a plumber to fix your toilet free of charge to prove he can plumb in your shower. The same goes for asking an established business to jump through hoops and doing a job at a bargain rate.

There is more work to come

Often, clients will dangle the carrot of "more work to come" as an inducement to get the project at a knockdown rate. Unless the work is guaranteed (in writing), don't be fooled. Often, the future work never materializes, and instead the client moves on to the next supplier and uses the same ploy with that supplier.

Start low, stay low

Once you've given clients a discount, it can be hard to ever increase the cost back to your original quote. They've argued you down before, so they'll assume they can do it again. Also, if they got a bargain rate, word could spread and then everyone will be asking for the same low prices.

That said, at times reducing your rate can be a clever business move:

  • You're saving the day. If the potential clients were recommended by a friend or colleague who can vouch for them, it could be worth negotiating. If they're genuinely in a pinch and you're doing them a favor, then it might be worth doing to earn a few karma points. Saving the day will make you memorable. Running a small business is not all about the money; it's also about building relationships and a strong reputation.
  • What goes around comes around. For established clients with whom you have a strong relationship, it can be worth dropping your rate on one job... if you agree to make it up later on another job. Being sympathetic to a client's financial ups and downs makes you more than a supplier; you become a trusted partner, and obviously that's good for business.

Other options are available

Overall, reducing your rates is a risky strategy; instead, opt for one of the following tactics to make your costs more appealing:

  • Remove a deliverable from the project or cut down the time allowed for consultation.
  • Throw in a little extra something for the same price.
  • Discuss the possibility of working on a retainer at a slightly lower rate for a set number of hours per week.
  • Agree to some kind of contra deal (exchange) if their service is something you can make use of.
  • Offer a small discount for paying the contract up front.
  • Provide small reductions for extras such as the guarantee of a testimonial or a backlink from your client's website (great for SEO).

Try to be clever with your reduction so that it has a benefit for your business.

Learn to say no

Often the best policy is to just say "no." After all, your price was based on the time you thought the job would take, your experience, and the going rate for your services in the current market. More often that not, the prospect will respect that and will ultimately agree to your price.

Often, many small businesses fail because they are just too nice; they focus on trying to please the customer more than trying to earn a profit. Just remember: Every time you reduce your rate, you are essentially giving your time away FREE.

So think long and hard about whether you feel the client deserves your charity.

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Kate Toon is an award-winning SEO and advertising copywriter with over 18 years' experience. She's also a well-respected SEO consultant, information architect, strategist, hula hooper, and CremeEgg-lover based in Sydney, Australia.

Twitter: @katetooncopy

LinkedIn: Kate Toon Copywriter

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  • by AdGirl Fri Jul 26, 2013 via web

    Great article. Some of it is stuff we already know, but I feel like this is the first time I've seen it summed up perfectly. Hopefully agencies and design shops will start heeding it and stop low-balling, so the playing field levels off a bit.

  • by DeenaE Fri Jul 26, 2013 via web

    Great advice, Kate. I especially like the "toss in an extra" as a comeback.

  • by Gina Lofaro aka the wordmistress Fri Jul 26, 2013 via web

    Excellent article, Kate. It's surprising how many businesses struggle with pricing yet it doesn't have to be a struggle with some canny planning and strategising. Your article should be kept handy so business owners can refer to it when they need an alternative to 'marking down'. Often, clients appreciate the gesture as much as the savings in fees and if it can be made in a different way - added value or reciprocal benefits - then everybody wins.

  • by Charlotte Calder Copywriter Sat Jul 27, 2013 via web

    Great article Kate - inspired me to get tougher!

  • by Gracious Store Sun Jul 28, 2013 via web

    Good post! I think it is best to have a fixed price for your services Yes times are hard, but you also want to build a brand, so it is better to have a standard being mindful of the had time. You may raise your rate whenever things ease off, whenever that may be.

  • by Sue Wed Jul 31, 2013 via web

    Good points here! When I first was trying to build a client base I worked for more than half of what I bill at now because I was # 1 needing the money - I hadn't worked for nearly 2 years and I was broke and # 2 I needed to get the business. A major wake-up call into that thinking was when I met with a CPA I was hoping to form an alliance with and be his main referral for his accounting clients and when he asked me for my rates I told him and he flat out asked me why I was willing to work for so little. More or less implying that I wasn't good at my job. I stopped lowering my rates for nearly everyone and I have now either raised my rates for my older clients or gotten rid of them if they objected to the rate increase. I will, however, offer a small hourly break for remote clients vs the ones that want me to come in house. If a client has me come in house it is usually the bare minimum amount of times if at all because they know they are getting charged for the time I leave my house to the time I get back home and they also get billed at the higher rate. It's to both of our advantages that they let me have remote access.

    For those few that still need convincing that my rates are very competitive I have a spreadsheet with my costs vs an in house full time (or even part time) person on their payroll. Once they see they are actually saving money by paying a higher hourly rate and not paying taxes or other overhead they are convinced.

  • by wyatt Wed Jul 31, 2013 via web

    A good proposal has siginficant cost. You meet and submit your bid,and the prospect may ask, what is involved in an audit or what is involved in this job? So, you try to educate them of the work involved.
    My response has become - How many other proposals have you entertained and do you know what is involved? I will provide the services in the manner provided in a timely fashion, but I am not interested in tryinn to low ball someone else or trying to meet your accelerated schedule so that you can qualify for a lucurative job or meet your own regulatory requirements to stay in business.
    I will not submit a proposal without some reimbursement.

  • by Scott Thu Aug 1, 2013 via web

    I've run into this situation many times, like most of us, I'm sure. I have two approaches that I take, depending on the particular situation.

    #1 - Reduction in Deliverables (just as noted in the article)
    If I'm providing design services for a logo, rather than give the client 3 initial directions, I will give them 2. I sell this approach by saying that I don't want to provide you with an inferior service, so since the fee will only cover a limited number of hours, I'd prefer to dedicate those hours to the number of directions I know we can execute on a superior basis. They seem to appreciate this and like the idea that they're still getting our "best work"

    #2 - One-time discount
    This is usually the last resort. If it's a client I really want to work with, I may offer them a one-time discount on services with the understanding that any subsequent work will be done at our standard rates. I put this in writing and get them to agree. It doesn't always prevent them from trying to renegotiate, but it sets the proper expectation for future fees and lets them know that I'm investing in their business. I think it also minimizes the potential for the client to say that the initial bid was inflated.

  • by Bec Christensen Thu Aug 8, 2013 via web

    Just yesterday I had an old client (no price rises for two years) ask me for a rush job at his old rate. I told him I'd happily do it, but charge him extra because I had to move my pipeline around for him. In the end his budget won over his urgency and it's a rush job no longer! Thanks for a great article Kate.

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