Never Put Yourself on Sale! Before Giving In and Lowering Your Rates, Do This Calculation

It’s tempting when the business is right in front of you, a mere seconds away from being signed, sealed and delivered. All you have to do is cut your rate by 25 to 50 percent and you’re hired! Sounds ridiculous, right? But that’s exactly what happens.

The reasons are endless, from the blatant accusations of “You charge too much!” to the pleading “But I can’t afford to pay that much.” Blame the economy, blame our deal finding culture, but these days everyone is looking for a bargain.

Now what you do is your business, but before you consider lowering your rates, do this calculation: take your rate, and multiply by your average monthly billable hours. NOW divide by the discounted rate. Compare the numbers. That is how much more you have to work to get the same amount.

For example, if your rate was $100 per hour and for easy math, you billed out 100 hours a month, that’s $10,000 per month. If you discounted by 25% to $75 per hour, you would have to bill out 133 hours per month. That number goes up to 166 hours per month if you discount by 40%.

It seems pretty reasonable on a monthly basis, but what if we translate that into weekly? At 25% off, your relaxed 25-hour week becomes a 33-hour week and at 40% off, it becomes a 42-hour workweek. Don’t forget that doesn’t include the extra time needed to handle all the administrative tasks that you don’t bill your clients for.

Now you could opt to make less that month. Your 25% discount only drops you to $7,500 per month and 40% is still $6,000 per month. But what if you didn’t discount and worked with fewer clients? It only takes 75 hours (or about 19 hours per week) to get you to $7,500 and a mere 60 hours (or 15 hours per week) for $6,000.

Creative Ways to Handle the Lower Your Rates Conversation

#1: Communicate Your Value – Go with the best defense is a good offence approach and put your efforts into effectively marketing your business to show how you are well worth paying a premium for. This tactic tends to curtail the asking for a deal conversations.

#2: Change the Scope of Work – Suggest a narrower scope of work in lieu of discounting your rates. Often clients who need a financial break are more than willing to do a bit of the work themselves to still benefit from your expert help.

#3: Focus in the ROI – Ask your potential client how buying whatever you are offering will benefit them in tangible terms. So for example, if the goal of the marketing program you are proposing is to increase their sales, ask them how many new clients they need before the program pays for itself?

#4: Avoid the Rates Talk Altogether – Don’t disclose your hourly rates at all and instead present your prospects with a scope of work and a price. Often what prompts the discount conversation is when they perceive the hourly price to be too high. Instead focus the conversation on the value of what you are doing.

#5: Just Say No (and Go to the Beach Instead)! – Be prepared to refuse the request and use the extra time that your full rate affords you to either: a) go to the beach or otherwise enjoy life as you see fit or b) focus on initiatives that bring in new clients or create leverage in your business!

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About Carla Young
Carla Young, MOMeoMagazine.com Publisher If there’s living proof that women can have it all – and then some – it’s Carla Young. Building her multiple businesses on a virtual work-at-home model, Carla is an inspiration to other mothers who want to start a lifestyle business. During her early days as a mom entrepreneur, Carla made every single mistake in the book (and a few new ones for good measure). Realizing that “doing it all” was unhealthy and unsustainable, Carla started by getting organized to the extreme, developing support systems for both her work and family. After other mothers started asking how they too could enjoy her lifestyle, Carla launched MOMeoMagazine.com to support moms at work, at home and at play (because every mommy deserves a little me-time)!

Comments

22 Responses to “Never Put Yourself on Sale! Before Giving In and Lowering Your Rates, Do This Calculation”
  1. Nancy Kenney says:

    Love this. Very true and often times life makes us do the discount to pay bills.

  2. Greg Lehman says:

    This is absolutely true. I heard a speaker a few months ago talk about the same thing and it’s stayed with me ever since.

    We get so excited to close the sale, we don’t think about the long term effects of lowering our rates. We don’t do the math like you did here to figure out how much more time we need to invest to make up the difference.

    You’re absolutely right to talk about the client. Their goals, what success looks like to them and focusing on the value that you bring. I always say to a prospect: I want to give you enough of my time to allow me to meet and exceed these goals. I want to be able to partner with you.

    It’s hard to walk away from money, but sometimes you have to. I’d rather have fewer partners/clients who I can really build a strong relationship, than to have so many clients at discounted rates that I can’t do a good enough job for any of them.

    Excellent post!

  3. Rufus Dogg says:

    The first feeling you get after you close the deal by lowering your rate is resentment. Instead of starting the project excited and challenged, you start like you have just been taken advantage of.. because you have been.

  4. Carla Young says:

    Thank you, Nancy. Yes, it is true that sometimes you may need to factor in your current client load when deciding to stand firm and say no. My advice is to not get in the habit of discounting to land the business though as it can become a habit that has long terms effects like @twitter-357016200:disqus talked about above.

  5. Carla Young says:

    @twitter-357016200:disqus Exactly! I wish I had been given this advice when I first started. I got bullied into lowering my rates for an agency client under the promise of guaranteed ongoing work; however, the ongoing work wasn’t as steady as promised and yet they still expected the preferred rate. BIG MISTAKE!

  6. Carla Young says:

    @google-d3113a85de9474ddd54bdcd0f16e1a4f:disqus Thank you! It is true that you sometimes do have to look at your current workload and make a hard decision to take on a project for less than you would prefer. As @twitter-357016200:disqus said, it’s important to consider the long term implications of that decision. Regardless, I would caution against getting in the habit of using a discount to close a deal.

  7. Carla Young says:

    @google-d3113a85de9474ddd54bdcd0f16e1a4f:disqus Thank you! It is true that you sometimes do have to look at your current workload and make a hard decision to take on a project for less than you would prefer. As @twitter-357016200:disqus said, it’s important to consider the long term implications of that decision. Regardless, I would caution against getting in the habit of using a discount to close a deal.

  8. Carla Young says:

    @twitter-357016200:disqus Exactly! I wish I had been given this advice when I first started in business a decade ago. I allowed an agency to bully me into a lower rate with the promise of guaranteed ongoing work; however, the ongoing work wasn’t as steady as promised and yet the agency still expected the lower rate. BIG MISTAKE on my part.

  9. Carla Young says:

    @twitter-357016200:disqus Exactly! I wish I had been given this advice when I first started in business a decade ago. I allowed an agency to bully me into a lower rate with the promise of guaranteed ongoing work; however, the ongoing work wasn’t as steady as promised and yet the agency still expected the lower rate. BIG MISTAKE on my part.

  10. @UncleChaim says:

    I often offer the client three prices up front. When they ask what the diferent prices are for, I tel them that I have three ways to work on their project. Passive, active, or proactive. That gives me an oppening to show them the value of having me as a proactive team leader as opposed to an active team member, or a pssive team player. They almost always chose the proactive rate. This eliminates any arguments over rates. Because if they do try to go with a lower number, I say “no problem” and offer to change my level of involvement.

  11. Carla Young says:

    @2c3fc1c3a5e0133b468bb465a75c6129:disqus That is a fantastic way to approach it! I love that!

  12. This is brilliant! This is indeed fantastic approach. Another way of approach would be to tell the client that if he could convince two other clients to do business with you, the discount would apply.

  13. Angele @shoeboxbegone says:

    i’ve ‘productified’ most of my services. I know exactly how long each task takes me, so I bill by the task. EG I know a small business tax return averages 3 hours. so my rate is not per hour, but rather, a 3-hour equivalent. And clients are told what is covered in that price – any extra work will be charged at X / hour. most of the big stuff : returns, set-ups, clean-ups, etc are on fixed-pricing with specific levels of involvement, and any extra work or monthly bookkeeping is at the hourly rate.

    I’ve actually noticed that when I DID give discounts, I resented the job and though I completed the work the level of service the client received was not the same. Noticed this afterwards while thinking back over past contracts .

  14. I was a Realtor for 10+ years and when the housing crisis hit, I had client after client ask me to reduce my commission. My answer was always “I will reduce my commission but you will be getting a reduced marketing plan” and I would break down the costs of where the commission was going. So many people think that the Realtor gets all of the commission but that’s not true. There are company splits, magazine ads, MLS listing fees, etc. Reduce your commission and soon you’ll be working for free.) Upon any negative comments about this I would then say “Let me give you an example…If you’re going to the doctor for an operation, asking him to reduce his costs might get you a more inexperienced anesthesiologist. But it’s your choice. Asking me to reduce my commission means you will get less marketing on your home.” Almost always I still got the listing because I was honest enough to tell them what they would not be getting otherwise.

  15. Marc Scott says:

    As a Voice Actor working from home there is always the temptation to drop my rates a little to secure a gig. But then I always remind myself of the precedence I set. If that client comes back for more voice work from me, they’re now going to expect that lowered rate. That means I don’t just cost myself on one job, but potentially every future job with them as well.

    Thanks for the great tips. It’s important for us all to remember our value.

  16. Carla Young says:

    Marc, you are welcome! It’s true that giving in to the temptation to lower your rates to close a deal costs you a lot more than what you give up for that particular job. I had one client who I gave a special rate to start sharing that rate when she recommended me to other potential clients, setting them up for sticker shock when I told them my real rates.

  17. Carla Young says:

    It’s true that your clients are paying for a lot more than what they see. They are paying for all the time you save them, the experience you gained through the years and ultimately, the results you get them!

  18. Carla Young says:

    The resentment trap is a dangerous one! It’s hard to do an amazing job for a client when you are busy resenting how much money you are losing by working for them!

  19. Susan Carrico says:

    Dana- Really? Comparing services of realtor that has to sudy for 6 weeks and pass a 8th grade level exam vs a Doctor? Cmon anyone with $1200 can become realtor…. They are a dime a dozen and going the way travel agents did in the early 2000′s They just arent neccessary anymore with the internet. It will be a flat fee very service soon due to unprecedented compeition. I like how you justify your fees, clearly not many repeat clients :)

  20. Nancy Kenney says:

    Thank you.

  21. Spike_Mobile says:

    I come back and read this post often and when I speak with students about entrepreneurship, I say it’s the best lesson I learned in my first year of working for myself..

    It’s not always easy, in the past couple weeks alone I’ve had 3 potential clients who all had different reasons for wanting reduced rates. In the end, I was firm about not lowering my prices and we didn’t begin business, but now I’m free to pursue other leads.

    Like you say, it’s also about time and the kind of life I want to live. I want to go to the beach and enjoy life when I can, not be stuck working 80 hour weeks and just paying the bills.

    Thanks again for sharing this!

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