How a services firm can discount its price without compromising hourly rates.

When a professional services firm contracts to perform a big project, it is common for it to get a request to work at reduced hourly rates.  While it may be tempting to discount to lock in the deal, doing so also sets a precedent with the customer and those it talks to, making it more likely that future work will be at the lower rates.

Since a rate, once set, is hard to increase, it is all the more critical to protect it.  A good alternative to discounting is to offer a lump sum credit in the contract.  Position it as an amount that is earned over the course of the contract so that, the more services provided, the greater the share of the credit is realized by the customer.

The benefits of giving a credit rather than discounting rates are that:

  • It preserves hourly rates for services outside the scope of the contract as well as for new work with this customer and those it speaks with.
  • It educates and motivates the customer to contract for large blocks of work in order to secure additional credits.
  • It leads the customer to focus on the overall cost of contracted services relative to value received rather than on the price of each hour worked.