How to handle a client who demands agency discounts

by | Apr 4, 2018 | Managing Clients

Here's how to handle agency clients who want a discount or other price cut.

Are your agency’s clients demanding price cuts or other discounts? Here’s how to handle them.

Got a client who wants your agency to cut your rates, without cutting the scope? Stand firm—don’t offer a discount without a scope reduction!

An agency owner and coaching client recently asked me:

“I’d love to get your take on a client of ours. The financial services firm is currently our largest client, but they have also been a huge pain. Long story, but the latest is they think our hourly billing rate ($150) is too high and want to see us lower it, and/or put different billing levels into place for different staff members. He also wants us to potentially switch to fixed-scope vs. [flexible hourly] retainer.

I’m wondering if you’ve had clients who have been asked to lower their agency billing rate, and how you would approach this?”

Short version? Don’t give clients a discount when they demand it—it’s a slippery slope, and you’re setting a bad precedent.

Instead, here’s how to fight back—and preserve your dignity—when a client wants a discount from your agency.

Three Steps to Fight Back

The right solution depends on your bargaining position. If you have a Client Concentration problem (this client is more than 20% of your business), you’ll need to take steps to fix that before you push back.

1) Use an example from their industry. For example: “I’m curious, if one of your depositors said they wanted you to pay them 1% interest instead of 0.5% on their savings account, how would you respond?” And then hold your tongue so they can be uncomfortable and respond.

They’ll probably make some excuse about products vs. custom services. You can also create an example from their prior job, if their current industry doesn’t lend itself to this comparison.

2) Reframe the conversation to be about value. Ask: “What value are you getting from your work? [Pause to let them share] If you’re not seeing value, we can reduce the scope of what you get, but just as your interest rates aren’t negotiable, our hourly rate is not negotiable.”

3) Weigh alternative pricing models… if you’d even consider them. Can you do it profitably? For instance, if they want a fixed-scope arrangement but they constantly want change orders, you and they will both be frustrated.

This is a Power Struggle. Hold Firm.

Ultimately, your agency should be willing to reduce scope (and/or change the format), but you should never agree to cut your prices without them giving up something they want.

Clients do not get to dictate how you do business—don’t even entertain the idea. In the original example—if you want to charge different rates by role, that’s your choice, not your client’s. The financial services marketer was being unreasonable.

If you’ve never pushed back to them before, they’re going to be surprised. They’re going to feel uncomfortable, and they may lash out—be ready for that.

Your client may threaten to leave. Then you’ll have to decide what to do. Would you tell your lawyer they’re too expensive and you want a price cut? No, but that’s exactly what’s your client is doing. Their actions are common, but they’re not right.

Keep in mind that discounts are OK if you’re the one choosing to extend them—that’s an example of doing something “strategically free.”

How to Fix This Long-Term

When clients perceive your agency as irreplaceable, they’ll keep paying more. When clients see you as interchangeable, they’ll leave—or threaten to leave. That’s why you need to specialize, avoid Client Concentration, and think like a personal trainer.

More broadly, this is about agency positioning—consider whether to position yourself as a “premium” agency, instead of mid- or low-priced option. That way, no one’s surprised that you’re expensive.

A colleague recently found a big-agency pricesheet from 1988. Twenty years ago, a senior person got billed-out at $317/hour—nearly $700/hour today! The industry has changed in many ways, of course, but your competition includes expensive firms, not just cheaper ones.

Question: How do you respond when clients demand a discount?

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