Have you been tempted to give new clients a “first-time” discount, to close the deal and get the cash at your agency?
Many agencies have considered initial discounts, hoping to “make it up later.” The concept is good in theory—but it rarely works in reality.
My advice on first-time client discounts? DON’T DO IT. Instead, price everything to be profitable on a standalone basis. That is, “Phase 1” needs to be profitable by itself—because there might not be a Phase 2.
Let’s explore 4 reasons why initial under-pricing gets you in trouble, 3 cautionary tales from my experience as an agency employee, and 5 things you can do to protect your agency from new-client discounts.
Remember: The stronger your business development pipeline, the more secure you’ll feel!
Why you get in trouble later: 4 client scenarios
Why should your agency price work to be profitable from the start? Because in my experience, agencies rarely “make it up later.” Consider four reasons:
- Things change: The client means well—but circumstances change. For instance, your contact leaves. Or the discount-seeking startup says they’ll pay you more when they get funding—but then their new investors demand a fresh new agency.
- You set a dangerous precedent: Even when you say it’s a one-time discount, clients tend to expect more discounts. Why? Well, you did it once; it’s reasonable for them to think you’d do it again.
- They did a bait-and-switch: Sometimes clients will trick you—where they ask for a first-time discount, knowing they have no intention to work with you after that.
- You don’t want to: Sometimes, you decide you don’t want to work with the client again—because they’re difficult to work with, or because you later resent the discount.
Conveniently, all four problems have the same solution: charge enough up front.
Cautionary tales: 3 stories about [not] charging enough up front
Aren’t convinced yet? Here are three “cautionary tales” from my time as an agency employee, before I became an agency consultant.
- No access to higher-ups: A former agency had designed an online tool to design custom products for one of our clients, a subsidiary of a brand holding company with billions in revenues. I wasn’t there when we’d built the tool, but it appears we’d tried to work our way into other brands at the company. It didn’t work—but that wasn’t surprising. Why? Our day-to-day contact was an Assistant Brand Manager, two or three layers below a cross-brand decisionmaker. The holding company had thousands of employees, and the project we’d sold wasn’t very important to the higher-ups.
- Unexpectedly small budgets: As Director of Client Services at an agency, I secured “preferred vendor” status at a large university. We figured the big-budget projects would roll in—to match their billion dollar endowment—but that wasn’t the case. We got several projects, but some of the university’s departments had measly budgets. And internal politics meant most of the work wasn’t particularly profitable.
- Big surprise on Phase 2: In another situation, we started delivering work before requiring a deposit. The agency owner was eager to get started—before signing a contract, much less receiving a deposit. The implication was that we’d figure it out later—and the client was worth it for our portfolio, since she was an Olympic athlete. As the project manager, I insisted on a nominal initial deposit—which is good, because that’s the only money we received before the athlete’s agent cancelled the entire project.
Is it ever OK to charge a small amount for an initial project? Yes, in certain circumstances; read on.
4 times it’s OK to charge less
To be clear, I support doing narrow-scope projects for new clients, where you hope to get a Phase 2. Many of my clients have used this to grow their agency.
There are four circumstances when you might charge less:
- A discount is usually OK if there’s a commensurate scope reduction. It’s a smaller price because it’s a smaller scope, not because you did a big scope at a big discount. A few years ago, I did a small project for an agency that was one of the largest partners for a large technology company. The scope didn’t meet my usual minimum, but I was curious to work with them. Importantly, I scoped the work assuming there wouldn’t be a Phase 2. And indeed, there wasn’t; the agency owner just wanted an outside opinion.
- It’s OK to do pro bono work for non-profits and others in need. When the COVID-19 pandemic started, I gave away 12 hours of free consulting time, to help agencies that were struggling. The free calls “sold out” in ~15 minutes. I intentionally scope-limited the calls—including what I’d do before, during, and after each call. And they were all self-booked; I didn’t have to do manual scheduling to make the calls happen. The key is that it was an intentional giveaway; future one-time calls are billable.
- It’s OK to make things “strategically free” (or “strategically discounted”). In those situations, you’re choosing to give clients a discount, and you’re calling it out as a special deal because your agency receives a benefit; the discounts aren’t “secretly free.”
- Consider offering a loyalty discount. If a client has been with you for a long time, consider offering a discount to reflect their loyalty. But ideally, it’s a discount off your now-higher new prices—not a random discount. I also do a nominal two-way referral discount, when a current client introduces me to a new client; this lets me reward both parties—and it makes my current client a hero to the new client.
Let’s look at how to protect yourself against the urge to offer unprofitable first-time discounts to new clients. (Apart from strengthening your sales pipeline to feel more confident.)
Protecting your agency: 5 ways to charge enough up front
How can your agency protect itself against the urge to undercharge new clients? As you strengthen your pipeline, consider 5 solutions:
- Commit to charge full price for every Phase 1. Start with this mindset shift. Once you commit to stop the first-time client discounts, everything else gets easier.
- Enlist someone to “keep you honest.” If you’re likely to be tempted, add a layer to help you stay accountable. Perhaps your senior PM or head of operations reviews proposals before you send them. Maybe you agree to review things with your assistant—where they might not understand 100% of the proposal, but they can tell when you’re inserting a discount.
- Offer a narrow-scope Phase 1 option. That is, it’s a small price… but also a small scope. For many agencies, this is a Paid Discovery offering; here’s my advice on how to get started with Paid Discovery.
- Require a healthy deposit. When you require a deposit up front, you screen-out clients that can’t afford to pay promptly or that are likely to wheedle for a discount.
- Don’t work with over-extended clients. That is, don’t work with clients where “something small for you is big for them.” As usual, a ‘fast-fail’ sales process is your friend. If you really really want to do the work regardless of the client’s ability to pay, frame it as strategically free (and definitely not an open-ended scope).
Still tempted to give a first-time client discount? Recognize that you’re setting a risky precedent; don’t expect the client to stick around. Or if they do stick around, you might wish they didn’t. Good luck!
Question: How do you approach new clients who want an initial discount?
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