In our relentless and sometimes unthinking pursuit of growth, ‘winning’ business at any cost, may lead to the loss of something more valuable. In fact, unchecked discounted pricing is ultimately irresponsible, selfish and unsustainable. The effects of discounting are bad, not only for your bottom line - but also for your head-space.
Having benefited from a pricing workshop run by the wonderful Mette Davis, I have re-framed the way in which I look at pricing. We’re looking at this from our own perspective as an integrated marcomms+ agency, but the same principles will apply to many other businesses.
The effect of discounting is twofold:
1. Rate vs Hours
In practical terms any professional services company selling time will have set financial targets based on their inventory (how many hours they have) and hourly rate.
Simply put, if rate declines then volume of hours must increase to compensate. That means people’s workloads increase, and pressure to deliver increases. The link between discounted rates to over burdening teams is not immediately obvious but there is direct cause and effect.
Let’s not neglect our responsibility as employers to ensure that we are not burning out our staff. If sales people, and those in charge of resource allocation had a dashboard that showed this relationship, maybe pricing would be more robust.
2. People are valuable
In emotional terms, what message does it send out to those delivering projects that their time has been devalued?
In effect, we are saying that we don’t believe their time is worth what we believe it is after all. If we asked the individual who has been ‘discounted’ how they feel, maybe ‘dis-empowered’ would be a natural response. As a client, driving a brutally hard bargain may have unintended consequences of demoralising the talent you are hiring.
We all like to please. I know only too well the pressure to discount pricing - and indeed, I ask for discounts when I’m buying – but, it’s surely time to pause at least. Behaviours can be self-perpetuating and largely unconscious.
3. Price satisfaction
When it comes to pricing, we’ve often negotiated with ourselves before we’ve even typed a number into our proposal. It’s no small wonder that there is a confidence gap between the price we believe we can charge, and the price a client is willing to pay. The good news, of course, is that this is all fixable. We can adopt a strategy of focusing on the value of commercial impact on business rather than its cost. We can even choose to walk away.
However, if price negotiation feels fair, then we have achieved not only a satisfactory commercial arrangement, but most importantly, peace of mind. And that applies to those negotiating as well as those left to deliver on the deal. A win – win situation. And we all like those.
We are proud to support Mental Health Foundation.