It happens to the best of us.
You submit your proposal.
You wait anxiously.
Then you hear from the client...
You’re too expensive.
The reality is this happens much less than people think, and if it does happen, it is far from the end of the road.
If anything, I believe you’re more at risk from underpricing than your are from over pricing.
But what to do if your price is deemed too high?
Your first inclination might be to get upset, but a pricing objection should never be taken personally.
You may be inclined to simply reduce your price. But think about it, what message does that send? If you can arbitrarily reduce your fees, it comes across as though you simply made them up in the first place!
It also smacks a little of desperation. And you don’t want to come across as desperate.
Your relationship with the client should always be peer-to-peer, and your engagements should always result in a win-win scenario. The same is true of the sales process.
The good news is that, if you’re in a competitive situation and the client has told you that you’re too expensive, yet they haven't awarded the contract, then it likely means they want you to do the work!
Your challenge for you is to get to a win-win fee. To help you with that, here are 10 suggestions...
10 Ways to handle pricing objections
The 10 different suggestions fall into 3 different categories:
Take a look through the options and determine which one(s) are appropriate for you to try. They will likely differ depending on your exact scenario, so be sure to bookmark this page so that you can come back to it in future.
Scope and Approach Validation
01 Reconfirm the scope and your approach
If your fee is too high the first thing to determine is whether your understanding of the scope is correct.
Before you start giving things away, make sure both you and the client have the same understanding of the project and your proposed approach.
It may simply be that the client does not understand how much effort is required from you and your team, and that once understood, the fee objection may simply go away.
02 Get the client to do more of the work
Your aim is to help the client move forward with the project in order to achieve their objectives.
We’ve already established that, as you’re in a pricing discussion, the signs are that the client is keen to do the work and is interested in engaging you and your firm to assist.
One way you can reduce your cost is to reduce your effort. And the easiest way to do that is to get the client to do more of the work!
Take a look through your proposed approach and see what tasks you can offload to the client to reduce your fees.
Obviously you must make them aware of this. And, if you do win the work, you must make sure to manage your scope very carefully. If not, you risk ending up taking on the original workload at the revised lower fee.
You have been warned!
03 Reduce your cost to deliver
We are entering risky territory here! Be careful where you tread.
One way in which to reduce your cost is to go review your estimated effort and assigned expertise to determine:
- Whether you can deliver the project with lower cost (more junior) resources, and/or
- Whether the amount of time you have estimated for each task and resource can be reduced
This is a necessary step, although I'm not a huge fan of using this option for fee reduction purposes. I'd rather it were considered more for cost reduction in delivery, and thereby to increase profit in delivery.
the other reason that i don't like is that it's prone to over-optimism. Especially from those sales people who like to claim that every project is:
You see, people get excited about the prospect of making a sale, so they become very optimistic as to what can be achieved by the team. They start to assign tasks to lower skilled resources in order to bring the cost of delivery down, whilst maintaining the profit margin, and still being able to offer the client a reduced fee.
This all looks good at the time of sale, but can bec disastrous in delivery.
It is, however, always prudent to review your approach. For example, are you giving a greater level of quality (which requires additional time) than is required. Could you deliver the same result with a less effort or expertise?
You need to get into the weeds here, and be creative. Maybe you can shave some cost by delivering aspects of the project remotely, thereby reducing on-site time?
Or if you are required to be on client site but can’t make all of your on-site time effective, agree with the client that you may spend some of your on-site time working on other client projects. Most clients will agree to this, although it does of course depend on the nature of your consulting. You should also ensure you cover off any concerns around data privacy and security.
To reiterate, your aim here is to reduce your delivery cost, whilst maintaining the profit margin, and being able to offer the client a reduced fee. But for this to be truly effective, you must be brutally honest with yourself.
The three options above all concern reviewing your effort, but in many cases there are no opportunities to reduce the effort.
In these cases you need look to see how you can exchange value with the client in order to get the fee nearer to their expectation.
04 Ask for a testimonial
Testimonials create trust and authority in your prospects.
If you haven’t already got a testimonial from the client, then consider trading a reduction in fees for a guaranteed testimonial. In fact, I would go for a quadrupple-whammy and request a:
- Video testimonial
- Case study
- Linkedin recommendation for the lead consultant
- A post on Linkedin to say that you're excited to be working together!
You should also be very specific about when you want it too. If the project is long, say 12 months, then you probably don’t want to wait until the end! Is there some other milestone that happens much earlier in the project that it would make sense to get a testimonial for?
Never rely on a client to write a testimonial for you! Whilst marketing your business is at the top of your agenda, it’s not likely to be high up on your client’s priorities. I’ve always found that if I write a testimonial initially for the client, they can then edit or even entirely rewrite it themselves. Regardless, it’s your responsibility to ensure the client doesn’t have to start with a blank sheet of paper.
There would be nothing more embarrassing than being given a testimonial that you can’t use, so don't put yourself in that position!
Also, make sure the client has authority to give you a testimonial. I’ve worked with a number of large corporates who have internal communications policies that prevent the provision of testimonials or referencing of them as a client.
05 Get payment up-front
Chasing payment is time consuming, and most every business battles with cash flow from time to time.
Despite what many so called 'gurus' will tell you, it's not always possible or appropriate to bill a client up-front and in advance of starting any work on a project.
However, to provide a fee reduction you can ask for payment up-front.
If it’s a large project, break the payment down into milestones and bill at the beginning of each milestone.
Remember to old saying:
Revenue is vanity, profit is sanity, cash is king!
06 Reduce or increase payment terms
The larger the client, the more likely it is that they have long payment terms. Some of the global businesses I consult with have 90-day payment terms.
You can leverage the request for a reduced fee to seek a reduced payment term.
On the flip-side, the client may be seeking a reduced fee in recognition of their current budget cycle. It may be possible for your fee to remain the same if your billing falls into the next budget cycle, in which case you might agree to increase your payment terms to help the client make the project happen.
07 Offer a discount on the next project
This is a more tricky one as it may not be possible, ethical or even legal to do so depending upon the opportunity at hand.
However, you may be able to continue with the fee proposed under the proviso that you provide a discount on your next project with the client.
To pull this one off you’ll likely be selling to an existing client as this one requires high trust from the client.
The value of the discount you provide might need to be greater than that requested for this to reflect sufficient value to the client as you’re still be asking for sign-off on your original unreduced fees.
08 Offer a deferment
This is in many ways the opposite to number seven. You can offer to reduce the immediate fee, but under the proviso that you can include it on your next project.
This can be useful if the client is currently budget constrained. The next project could fall into the next budget period, thereby making more funds available.
I’d only recommend using this approach in a situation where there is high trust as this is a high-risk strategy. Many things can go wrong, the most obvious being that the next project doesn’t happen!
That’s why this strategy is only really appropriate for a project that is a sub-element of an overall larger project or programme of work.
You must get the commitment in writing too, as another risk is that the person who agrees it with you leaves the organisation. You could then find your agreement worthless!
In the same vein, it can prove difficult to get any form of legally biding contract to commit to this strategy.
Take a Hit!
You are now at the point where you’ve exhausted your win-win scenarios. Your options here are more limited, and whichever option is chosen it will impact on your profits.
09 Give a discount
The end of the line – almost!
You’ve exhausted all avenues and the only option is to reduce your fee, and thereby to reduce your profit margin.
So ask yourself, should you? Is this the right thing to do?
Consider what other ways there might be to reduce the project cost. Are there other line item costs that you can leverage to reduce the overall project fees?
For example, I always apply a 5% admin fee on expenses. I do this because it takes time and effort to process expenses and invoice accordingly. You could offer to waive this charge (remember, it’s 5% on expenses, not the whole project cost!).
You could also consider simplifying your approach by agreeing a fixed expenses budget with the client. This could be utilised in a couple of ways:
- If you’ve included expenses in your costs, separate them to bring the project cost itself down. Then create a separate expenses budget
- Apply a fixed expenses budget, but offer to refund (or essentially not bill) any unspent amount. This might be a hard sell – it depends on the budget and if the client already knows you well enough to trust you at your word
You could go further and offer to cover all travel and expense costs. This one is obviously very dependent on the project at hand – it’s location, the likely travel costs, etc. The costs need to be enough to encourage the client to take action and make a decision, but at the same time it will eat into your profit margin so be sure you’ve calculated how much it will cost you and what you’ll be offering the client.
Eventually, you’ll be left with simply providing a discount.
Only you can determine if it’s the right thing to do, but before you do, here are some things to take into consideration:
- What does your current pipeline look like? Or in layman’s terms, do you need the revenue? Sometimes needs must, and the right thing to do for the longevity of your business is to take on the project even at a reduced profit margin. I would caution that, if you’re in a general downward spiral in your business, the right thing to do might be to let some staff go rather than take everyone down in a sinking ship!
- Will the project tie up valuable resources? Might you miss out on other more profitable opportunities? This is often referred to as Opportunity Cost. It is even more of a problem for the smaller consulting businesses and solopreneur because it can be very demoralising as you realise the consequences of your decision. Again, you need to have an understanding of your pipeline to determine whether the risk is worth taking
- Will it impact profitability on other projects with the client? Are you working on other projects with the client? There’s a chance that they might simply assume you can do all of your projects at a reduced cost. This is why you must make it very clear to the client that you have worked incredibly hard to provide the discount. You did it out of respect and loyalty, and your aim now is to demonstrate value such that you’ll never be expected to discount again!
10 Just say "No!"
The final option is to turn the client down.
The price is the price.
You’re not playing hardball, you’re simply being honest. It's not in you or your client’s interests for you to do the project at a reduced fee.
This strategy has two obvious results:
- The prospect says, “Ok, thanks for taking the time to submit your proposal, perhaps they’ll be an opportunity to work together again in the future”. You might think, ‘Fat chance’, but you never know! Maybe the consultancy they do choose messes up and they come back to you at a later date (following up on a lost project is a great way to win more work, so never burn your bridges)
- The client gives in and says, “Yes” to your full fee. If that does happen, you must now work hard to ensure the client sees and feels that they’ve made the right decision. You must deliver lots of tangible value. Ensure the client look good in front of their peers and staff. Make it clear that they’re smart by choosing your firm and pushing their budget. As a rule of thumb, the value you deliver should be at least 10x your cost
So there you have it, 10 ways to address pricing objections if your fee is deemed too high.
As you’ve seen, only one of them is to provide an actual discount.
My final piece of advice to you on this topic is this:
Hold your nerve!
The consequences of not holding your nerve can be significant, and could even bankrupt a firm.
I was talking with a client in a large firm only last week. He was telling me how one of his team members was delivering a project that was proving tight on time. When asked what he’d scoped the project at, his team member said a fee of £87k. When he asked how much it was sold to the client for, the answer was £62k!
Clearly the sales guy in this scenario lost his nerve. He got excited about the win, but ignored the delivery. He developed a fear of missing out, and so sold a project that might end up providing little or no profit.
You might say that any profit is a good thing, but if your business is to grow, you need to invest in marketing, in sales, and in your delivery team. This growth needs to be funded!
Your clients benefit from this investment too – which they funded – as your team and your capabilities grow to meet the client’s expanding needs.
Selling consultancy is not a game. Your firm has valuable expertise that you want to deliver to help your clients. You should set a fair and profitable price.
If you feel you can’t defend your price, then I would question if it is in fact fair, or if you might benefit from further training (such as our Sales Mastery for Consultants training programme). If you're not bought into your fee and the value that your firm will provide, then you’re unlikely to be able to convince anyone else.
And remember, when I say 'fair' I mean win-win.
You deliver the work. The client achieves their desired outcomes at a fee they are satisfied with (win) and you get paid profitably for your time (win).
Finally, remember these four golden rules of pricing objections:
- A pricing objection is the start of negotiation, not the end of it
- Reduce costs and maintain profit margins
- Exchange value
- Discounting as the last resort, and only when there are clear benefits to your firm
Do you agree with the suggestions made above?
Can you think of other ways that you could respond to a request to reduce your fees?
Let me know in the comments below.