Beyond Buying Sales: The Risks Of Discounting In Professional Services

In a former role, I was a lead salesperson for a professional services firm making a deal with a savvy IT buyer, in a CIO role. The CIO cared a lot for his organization and had no issue taking every penny in the contract negotiations. The deal was worth multiple millions over a couple of years, with significant upside if things went well. 

He and I went back and forth on the contract – getting the wording right, the scope right, and setting clear expectations for what would be an important and high-effort project. Once everything was nailed down and he appeared ready to sign, the CIO said, “I need you to reduce the cost by 12%.”

Without, of course, changing scope. 

Of course, we caved in. We agreed to his price reduction. We fooled ourselves into thinking it was a one-time discount. But the truth is, we never were able to increase our rates back to the original. It felt like the deal was on the line – if we pushed back, they’d back out. We needed the work and we’re happy to have it, even at the discounted rate we agreed to. But we’d have been even happier with a higher margin.

Learn from my mistake.

The reality is that it’s too easy to sell consulting services short, to reduce prices to win the deal. Changing the price point is the easiest way to differentiate your service in a sea of competitors that use the same model: “You pay us to work. We do work.”  

However, lowering prices means reducing profitability and it’s almost impossible to regain that margin in the next deal. Sacrificing your price point positions the business as a commodity that is worth less than you think it should be. This puts you and your customer at odds with the value of your work. Don’t do that.  

Instead, professional services companies need to prove the value of their services from the get-go and avoid price negotiations altogether.  

Six Ideas for Avoiding Price Reductions   

1. Niche down. Become a Specialist

Specialists are brought in to solve a specific problem in the industry. Their work is valuable because they have the knowledge and experience needed to get actionable results. Hiring a specialist feels less risky for the customer, and therefore they’re willing to pay more.  

To become a specialist in the field, professional service companies need to hone in on their target market. Identify the problems and pain points and offer actionable solutions. Your niche tells them that you are an expert in their domain and will be able to provide exceptional and efficient service. A side benefit is the opportunity for niche marketing which is easier than marketing to a too-wide market.

Consider this example when you’re planning to niche down.  

Too broad: IT Service Provider 

Better: IT Service Provider for Dentists 

Best: Microsoft-certified IT Service Provider for Dentists  

When establishing a new niche, it needs your full attention, so that your message is clear and reaches the correct target audience. Once you’ve successfully gotten traction in the new niche, it is possible to create a second niche market to cater to another audience but be careful to not do it all at once.  Marketing more than one niche at a time can dilute your messaging and hinder your credibility.  

2. Differentiate  

When professional services companies emulate their competitors’ pricing, service offerings, or marketing strategies, it often limits their results. While the “me too” approach is enticing, it doesn’t leave space for differentiation, and therefore, lacks compelling reasons for clients to choose them.  

Find ways to highlight key differentiators of your professional services business from the beginning, and continuously innovate to meet unique customer needs. If you’re only offering what your mediocre competitor is doing, the company is likely to experience stagnant growth and an inability to thrive in new markets.  

Differentiation can come from a niche, delivery model, customer experience, branding, staffing model (e.g., onshore vs offshore), contract models (e.g., hourly, flat fee, revenue share), and/or customer and partner relationships (all-in on a partner or agnostic).  This allows for a differentiated marketing campaign that focuses on your strengths.

3. Create a Unique Selling Proposition

A strong unique selling proposition (USP) for a professional services firm is designed to attract prospects. It differentiates your professional services company from its competitors and makes you stand out as the superior choice.  

Your differentiator doesn’t need to be service-related. There are very few unique service offerings in the professional services world. Instead, the uniqueness might be in the way your services are packaged, delivered, supported, or even sold. The way you position your work in your USP should entice potential clients to go out of their way to choose your business instead of your competitor.  

Consider these questions when developing your USP:  

1. Why should your prospects start a project?  

2. Why should they engage with you on that project? 

Establish clear, concise, and quantifiable answers to pinpoint your unique advantage. Note that your unique advantage is not the “most knowledgeable” or “best customer service.” Expertise and great service are baseline expectations of a standard professional services company. They are not something that makes you unique.  

Experiment with bundling in bonuses, adding services, or customizing the solution to add value for the customer without breaking the bank. Approaches like this one cost you less than reducing your rates and set you apart from your competition, successfully removing your firm from the commodity game. 

When it comes down to reducing prices to beat out the competitor, you lose. There’s always someone willing to sell cheaper than you. Let them. 

4. Be extraordinary in your work 

Plan to exceed customer expectations. Establish a deep understanding of your customers’ needs and pain points so that you can solve their problems effectively and efficiently. When you go above and beyond to take care of the customer, the price point becomes less important.  

Going the extra mile for the customer might look like working onsite or using an Agile or iterative delivery model to show incremental work. Demonstrate thorough project management and sponsor level communication throughout the project. 

Communication is key to making your customer feel taken care of. Establishing clear and open communication lines from the beginning will help build trust and collaboration, access relevant information, and tailor services to meet the specific needs of the customer.  

A large part of being an effective communicator is having the skills to help clients understand complicated concepts related to the work. It’s the consultant’s job to ensure that the client knows what’s happening throughout the project and why.  

Keeping the client feeling informed, listened to, and understood throughout the process results in healthy client relationships. Your communication should include regular updates, transparency, and responsiveness, allowing you to address issues promptly and predict roadblocks.  

All these factors will deepen customer relationships and keep them coming back for services regardless of your rates. 

5. Target the Pain Points 

Businesses who are in search of a professional services consultant have a problem to solve. For many clients, that problem is risk. They’re facing an issue that they don’t have the internal knowledge, experience, or capacity to solve, and that issue is impeding their goals. Therefore, they start looking for a consultant to mitigate that risk.  

It’s the consultant’s job to niche down and anticipate the risks of the clients in their target market. They need to be equipped to offer quick relief to the pain points that the client is facing and have a sense of what challenges are on the horizon. They should have the knowledge, experience, and expertise to be exactly what the client needs in that moment (alongside a compelling USP), and, as a result, the client will be willing to pay for it.  

6. Make a Compelling Offer 

A compelling offer for a professional services firm removes most, if not all, of the perceived risk for a client. It provides a quick, profitable solution to the client’s problem. It’s not complicated and is easy to set up.  

The goal is for your compelling offer to include such strong differentiators that the prospect has nothing to compare it to. So whatever price point you propose cannot be compared to anything they’ve seen before.  

So how do you craft a compelling offer? Start with these questions:  

Some things to note: 

• If you have a “commodity” offer, you will compete on price. The goal is to offer a value-driven purchase as opposed to a price driven purpose.  
• Beware of thinking that a free assessment is a valuable offer. This is an often-used tactic that prospects tend to see through.  

Aspects of a Compelling Offer  

Attractive Promotion

• Consider ideas like bundling services for a limited time to entice clients to onboard during a certain period.  

Unmatchable Value Proposition

• Double down on the unique value of your services and key differentiators.  
• Plan to engage the client with your team early on to demonstrate the level of customer service and attention to detail your firm offers. 

Unbeatable Guarantee

• Leverage guarantees to minimize perceived risk for clients such as satisfaction guarantees, performance assurances, or money-back guarantees. 
• Be transparent about the terms and conditions of the guarantee to build trust and confidence. 

Money Model (Payment Terms):

• Offer payment terms that cater to your client’s needs and incentivize early commitment or larger purchases. For example, offer discounts for upfront payments or for clients who commit to long-term contracts. 
• Consider subscription-based models or retainer agreements that ensure a steady income stream. 

Getting Paid to Get New Customers

• Create a referral program that rewards clients for bringing in business.  
• Consider rewards such as discounts on future services, exclusive benefits, or monetary incentives.  
• Offer a tiered approach where the rewards increase with the value of the referred business. 

Whatever route you decide to take, choose to avoid the race to the bottom on pricing. You’ll never get back up and it will hurt your business in the long run. Consider the strategies mentioned here and let us know what worked best for your business. If you need further direction on avoiding price reductions and creating a compelling offer, please reach out.  

Sentinel Way is here to help you work through the challenges inhibiting the growth of your professional services business. Learn more about our service offering and expertise.