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!