Reducing Your Rates: How Low Should You Go?

You send a great proposal, but now the client says your costs are too high. Should you reduce your rates to win the job, or should you stick to your guns and risk losing the project altogether?

Changing your rates on a client-by-client basis can be a dangerous game, so here are few things to think about before you take the plunge.

Times are tough

OK, so it's been a while since you've had a bite. The sales pipeline is looking a little empty, and just this once you feel you could drop your price just to get some money in the bank. Fair enough, but remember that business is a gamble and a full-fee paying client could be just around the corner.

First impressions count

If you quoted $1,000 but the client can pay only $800, then by reducing your rate at the drop of a hat you're basically saying that your first quote was excessive. You've just devalued your business in the eyes of your client. Not good.

Reduction breeds resentment

Feeling forced to drop your rates is not the best way to start a project. You may end up resenting your new reduced-rate client, grumbling every time they call, rushing their work, and prioritizing better-paying clients. If you do decide to reduce your rate, be sure to do it with a genuine smile on your face.

You need to prove yourself

Some clients ask for reduced, or even free, work, so you can "prove yourself." If you're new to the market, it might be worth doing a few reduced-rate jobs to fill your portfolio, but if you're an established business your proof should be visible via your body of work, testimonials about you, and your reputation.

You wouldn't ask a plumber to fix your toilet free of charge to prove he can plumb in your shower. The same goes for asking an established business to jump through hoops and doing a job at a bargain rate.

There is more work to come

Often, clients will dangle the carrot of "more work to come" as an inducement to get the project at a knockdown rate. Unless the work is guaranteed (in writing), don't be fooled. Often, the future work never materializes, and instead the client moves on to the next supplier and uses the same ploy with that supplier.

Start low, stay low

Once you've given clients a discount, it can be hard to ever increase the cost back to your original quote. They've argued you down before, so they'll assume they can do it again. Also, if they got a bargain rate, word could spread and then everyone will be asking for the same low prices.

That said, at times reducing your rate can be a clever business move:

You're saving the day. If the potential clients were recommended by a friend or colleague who can vouch for them, it could be worth negotiating. If they're genuinely in a pinch and you're doing them a favor, then it might be worth doing to earn a few karma points. Saving the day will make you memorable. Running a small business is not all about the money; it's also about building relationships and a strong reputation.
What goes around comes around. For established clients with whom you have a strong relationship, it can be worth dropping your rate on one job... if you agree to make it up later on another job. Being sympathetic to a client's financial ups and downs makes you more than a supplier; you become a trusted partner, and obviously that's good for business.

Other options are available

Overall, reducing your rates is a risky strategy; instead, opt for one of the following tactics to make your costs more appealing:

Remove a deliverable from the project or cut down the time allowed for consultation.
Throw in a little extra something for the same price.
Discuss the possibility of working on a retainer at a slightly lower rate for a set number of hours per week.
Agree to some kind of contra deal (exchange) if their service is something you can make use of.
Offer a small discount for paying the contract up front.
Provide small reductions for extras such as the guarantee of a testimonial or a backlink from your client's website (great for SEO).

Try to be clever with your reduction so that it has a benefit for your business.

Learn to say no

Often the best policy is to just say "no." After all, your price was based on the time you thought the job would take, your experience, and the going rate for your services in the current market. More often that not, the prospect will respect that and will ultimately agree to your price.

Often, many small businesses fail because they are just too nice; they focus on trying to please the customer more than trying to earn a profit. Just remember: Every time you reduce your rate, you are essentially giving your time away FREE.