The Downside of Discounts
By Rick Gould CPA, J.D.
The practice of discounting prices is setting a precedent that is hurting the entire PR industry. While it may not seem entirely unreasonable for firms to cut prices if they intend to hold firm when a contract is up for renewal or plan to make it up in a future fee, the truth is that discounting is a dangerous game.
Discounting in the PR industry lowers the average price, retainer, and project fees for all firms. It lowers the bar for all pitches and proposals. Though there are firms that discount on a regular basis, cutting their deserved price consistently, this is not a best practice. Though it may attract customers initially, clients will quickly realize that they get what they pay for in terms of service. While low prices may seem appealing to clients and increase your client base initially, high quality work at a reasonable price is much more beneficial to clients and to a PR firm in the long term.
By holding the line on fees, you will build profitability and value to your firm long-term.
By “low balling” to win over a client, you are lowering the price for a relationship that may last many years. A client uses the initial price as an anchor to set the bar for the future. If the retainer should be $15,000 a month and you lower the price for the client to $10,000 a month, it may take years to reach the monthly fee of $15,000 that your firm actually deserves. While offering a discount may seem reasonable initially, in actuality you are setting a bad precedent. Lowering your initial price significantly may indicate to clients that you don’t take pride in or value the services you offer. It will impact your relationship with that client, as well as your future fees and profits.
There are exceptions to this no discount policy, of course. For instance, if a quality, loyal, profitable and well-paying client is in financial trouble and requests a courtesy, discounting may be an option to consider. If you do agree to provide a courtesy discount, be sure to show the full amount charged for your services on the invoice and note that a discount was taken as a “professional courtesy.” Continue to note the discount this way each time it occurs – even if the discounting goes on for months at a time. By doing so, you will keep the benchmark and baseline price for your services at the proper fee. When business picks up for the client, you can drop the courtesy discount and charge the full fee once again. Additionally, you’ll have documented record of the discount you offered and will be able to keep track if the discount is not a one-time courtesy.
Before offering a discount, be sure to consider the consequences and repercussions that may result for your firm – and for the PR industry as a whole.