Twenty years ago, someone came to me looking for help with one of those tiny tasks that never grows into more business. But work is work, especially to a business newbie, and I knew the guy. I gave him a very reasonable quote. He balked, arguing, “We’re a nonprofit.” My answer: “I’m not.”
Flash forward to 2008. When the global economy hung on the edge of total collapse and business of any kind was hard to come by, I had to revisit that conversation. Was I willing to drop my rates to open a few doors or should I stand firm, tough it out, and hope that my reputation and cash reserves would help me survive the downturn?
It wasn’t a difficult decision. My value is not for sale.
Assessing value can be one of the toughest challenges facing any business. Bring small business folks together for a conversation, and the topics of rates and handling negotiations routinely come up. Pricing is often in the eye of the buyer—budget, need, demand and perceived value all come into play. And that’s before you, your credentials and your “value-add” even walk in the door.
Here’s my perspective: There’s always someone cheaper out there. So you need to be able to articulate what you’re bringing to the table (your unique selling points) and to make smart decisions about how you approach the whole pricing conversation.
If you’re negotiating over rates, however, then you may be selling your business in the bargain basement bin.
Rate or scope?
I’m fine if someone decides they can’t afford my business. But warning bells always go off when someone tries to get me to lowball my services.
Mr. I’m-a-Nonprofit isn’t the only person who has tried to get me to drop my rates. It happens. The irony is that it’s typically for a small project and the amount someone wants me to drop down is very small. Once, it worked out to under US$50 total—proving they were just testing to see if I was for sale.
My answer every time: No.
While I will not negotiate over rates, I will, of course, negotiate over the scope of work. This can be an effective way to provide value to clients while both meeting their budget parameters and getting paid what you’re worth.
Pricing is always a huge issue, and there is always flexibility on how to structure a proposal. But if your rate isn’t really your rate, then why quote it in the first place?
What about referrals?
If you won’t negotiate over rates, is it OK to discount your pricing in exchange for a referral? The whole dollars-for-referrals question came up on a recent #solopr tweetchat:
As a new SoloPR [pro], would you give a big discount to a client who offers to help you grow your business?
I’m not big on this idea for a couple of reasons. First, I want referrals from my clients because they value my work, not because my rates are malleable. As Kristie Aylett, founder of The KARD Group in Ocean Springs, Mississippi, pointed out, “Once you offer a discount, odds are you will never return to your full rate.” Second, any quid pro quo that involves money changing hands (directly, or indirectly via a “discount”) will always make me uneasy. It’s a business philosophy: I believe referrals should happen “because”—not because the referrer is getting something in return.
The whole topic of referrals, however, is actually part of a bigger issue involving your broader business model, as several people pointed out when I seeded the question on a LinkedIn group discussion.
Shane Phillips, North Carolina regional director for American Credit Card Processing, said his company mainly offers referral bonuses—but will occasionally drop its rates. “If I have a client that is consistently sending me quality referrals, I lower their rates to a point that basically covers our cost.” He added that he has also set up affiliate partnerships to reward companies who refer significant business his way.
Mike Dolpies, co-founder of Cyberspace to Your Place in the Greater Boston area, cautioned against paying for referrals—unless you’ve clearly set up an affiliate program. “If [an affiliate program] is all you have, you risk alienating the folks who are simply happy clients/customers and want to ‘tell their friends’ about you and could care less if they get paid,” he said. “The idea is to maybe have both or choose which fits your business.” He uses both—for different products and services—and likes to send notes and/or small gifts to thank people for referrals.
In other words, what you do depends on your business model and how you are set up. One person said that his business will give a small discount both to repeat customers and customers who refer new business; another that he offers a free month of service in return for testimonials that can be seeded across the Web.
Whatever you do, however, it’s important to understand the consequences of the choices you are making. I don’t have an affiliate program, for example, so I’m not set up to pay for business leads (nor do I get paid to make referrals for products or services). For any business, the perception that you are for sale can be deadly. After endless holiday sales, retailers have trained us to wait for the “real” (discount) price to kick in. Is this the message you want to send to your clients and prospects?
