Nickels and Dimes
by Brent
on
Jul 10, 2001 at 11:48:39 pm
Hello all,
I've got a customer whom I've done work for in the past that wants another video produced. I gave them a discount and threw in a lot of stuff for free on the last one so that I could establish a relationship with them, with the understanding that there would be more work coming from them in the future.
Now, with not having the same discount on this project, they're balking at the price. (We're still in the bidding stage, no work has been done yet.) I feel like I'm budgeting for the bare minimums, while still maintaining a somewhat decent profit margin. My rates are lower than most of the rest of the market (not significantly, but somewhat,) while I feel that my work is comparable or better than most. (All right, so it's a biased opinion.)
So, my question is, how do I handle their concerns. What I'm getting from them right now is: "You gave us a discount on the last one, and still made money, so why not do it again?" How do I tell them that I can't do that every time? They admit that I am lower than others, and they were very happy with my work on the last project, so it seems to me that they should be happy with what I'm charging for this one. Also, they want this done by the end of the month, but they can't understand why I'm adding some for rush fees.
Unfortunately I'm not to the point in my business yet where I can comfortably afford to lose this job. I can do it for a little less than what I've told them at this point (I'm thinking a 5% discount,) but I don't want this to become a pattern for the future.
Re: Nickels and Dimes by Jay B. Childs on Jul 11, 2001 at 3:21:41 am
Brent - When one is just starting out on their own - and congrats by the way for taking the leap - this is one of the most common and frustrating problems you run into. There are very few hard and fast rules that apply in this business but this one I have found holds true(through making the same mistake over and over a few times):
If you ever offer a discounted rate or total for a project with a new client - they WILL expect to get that discount forever. They NEVER see nor digest the actual price you derive the discount from. They will define you by these rates. Just be VERY wary of the quid pro quo discount. Clients seldom if ever live up to their end of the bargain to respect your "regular" rates on the next project.
There are a few things you can try however. Most company's have Rate Cards - though few people follow them religiously. My rates if I am estimating a full project generally reflect a modest discount from the hourly rates consdiering I am getting a "body" of work from the client rather than just an hourly service charge here and there.
Make a rate card and show them that based on the nondiscounted figures you have put together - the rates on margin are still lower than your "published" rate card. Every client wants to "feel" like they are not paying full price, so show them they are still getting some manner of a discount.
Secondly, I had a client tell me once my cost should be less this time around for a project since after working together already my efficiency should improve (I kid you not). I explained to him that other than maybe some time saving on the scripting end - basically we were creating another project from scratch. He began balking at price and I asked him:
how much did you spend on this previous video program?
Did the video succeed in explaining your technology to the client and helping to win the contract for you?
How many years and presentations do you estimate the video will be valuable and relevant for?
So over time you (client) can probably demonstrate $X revenue generated over X years on a program you only spent X on (or X per year on). Sounds to me like you got a bargain.
You need to project confidence in what you charge and confidence in your professionalism. Because so many businesses see what you do as still somewhat of an "artistic" service - quite often they think you must not be much of a business person - or at least someone they can haggle price with. If you project confidence in your abilities to deliver them value and quality - and you stick to your rates - very often they come around.
If they become belligerent about price - even though you are trying to establish yourself - very often how much a prospective client tries to beat you up over price is a pretty good window over how much they respect you and how they will be to work with in general. Sometimes the client you walk away from will help save your company rather than endanger it.
Good luck. Keep us posted.
Jay
When you ask these kind of questions your client very often will begin to see that for all they spend on their other sales, marketing, training etc. tools - your services - amoritized over time come off looking like a bargain.
When it comes to pricing your work - look at the competition around you and find your price/quality niche and establish yourself there.
From there you can decide when and when and where to possibly offer discounts but BEWARE.
Re: Nickels and Dimes - Is this how it's done? by Brent on Jul 11, 2001 at 6:25:18 pm
Well, first of all, I got the job. I gave them a set price (a little higher than what I figure it'll take,) and gave them a 5% discount on it. So, I'm trying to figure out if I'm happy about it or not . . . :)
Let me ask you all if this is the right way to approach things. Based on advice from a friend of mine who is a producer for a very large media company in the Northwest, I quoted them a price range with low and high limits, with the final price to be determined after all my hours and expenses are accounted for. They didn't like that, and wanted me to give them a "set in stone" price.
I want to be able to give people a range so that I'm not overcharging them or shorting myself. What has everyone's experience been with that?
Re: We do a set in stone price... by Tim Kolb on Jul 11, 2001 at 10:41:47 pm
However, we have a fairly extensive pre-contract fact-finding process and our proposals define the project to the point where we're comfortable with committing to it. When the client wants to add something that will add cost, we inform them of what the additional charge would be and give them the choice to include it or not.
We lay out the terms of the agreement ahead of time and go from there.
While I'm sure this seems very risky, all I can do is turn the situation around and ask you if you would prefer to have the price of groceries on the shelf be defined by a "range" and you have no idea what you'll be paying until you tally up at the checkout?
I'm sure you're saying "I'm not selling groceries, my services are NOT that cut and dried."
All I can tell you is that most of our clients are businesses of some type, and businesses run on budgets. Predictable expenses are important in business because revenues usually aren't as predictable as we'd all like to think and it's good to at least grab hold of one side of the equation.
In the end, like it or not, we're just one more line item on a company's list of expenditures.
Every situation is a bit different and only you can gauge the level of discomfort your client has with your pricing and your risk either by discounting the job and accepting the assignment or cutting it loose to stick to your guns.
The first thing that most of us who are having client relation problems have to do is trade places with them and see it from their side. How was the client informed of their discount on the first job? If the real cost and discount weren't described plainly on the invoice, the "discount" just doesn't stick in the client's mind. Was the ACTUAL value of the project shown to them in detail so they appreciated the discount? Did you describe the discount very directly in your discussions of pricing and address the fact that it was one time only?
I suspect some of the free things that were furnished in the original job were not mentioned to the client or tallied on the final invoice with a discount against the charge. Every item or service you furnish to a client that you don't plan on furnishing again better be called out very specifically, because client's memories aren't good at maintaining such things.
The precedent sounds like it's set. I guess now you have to decide how to move forward.
Re: We do a set in stone price... by Timothy Allen on Jul 12, 2001 at 1:34:39 am
I don't quote a range, but I do quote a "base rate". I try to spell out everything that I can think of in my contracts. Then, if they are asking for something "extra" (Even for one extra VHS dub, "so they can let their wife see it"), the charges are already spelled out in the form of an "additional requests & changes" form. Obviously, you can never anticipate everything, so make sure your base rate covers more than your expenses and minimum profit.
Then, when I add it all up at the end, show them their bill with the "real rate", then their "discounted rate", they feel like they have "won". And they have - they got what they wanted for less than the going rate. The thing is, I "win" too, because I have made the money that I feel I honestly deserve for the project and can fell good about not only giving them what they want out of the deal, but keeping everyone happy during the process (including myself and my family). As it has been said before, "you define your own value". Be honest, but be fair...not only to them, but to yourself.
Remember that it is better to not do a project if you will end up feeling like you cheated yourself out of a fair profit.
Re: One more question by Brent on Jul 12, 2001 at 7:36:26 pm
Thanks to all for your input. Do you give them the price without a script? The project that I just went through this on is "script to master." Can I charge an hourly rate for developing the script, and then give them a set price on the video once I have a script to base it on?
For instance, this project is looking like I'm going to have to purchase some stock footage. I didn't allow for that in the budget. I'm willing to absorb the cost on this one, but how do I deal with things like that? It seems that if I pad the budget significantly enough to cover contingencies like that, then I'm cheating them if those things aren't needed. At the same time, if I don't add for things like that, and they are needed, then I'm shooting myself in the foot. Like Timothy said, I need to be fair to both of us.
Re: One more question by Tim Kolb on Jul 12, 2001 at 9:41:17 pm
I don't think that there is a set way you HAVE to go. If charging hourly for the script and then locking in the production cost works for you and your client, I think that's great!
We do develop a pretty extensive outline in that locked in proposal. While final wording in a script form is not included, a pretty detailed outline of content (and therefore a sense of general visual content) is included. That way, if the script departs from the outline necessitating extra work or costs, that causes a change order which opens up the opportunity to reexamine the fee structure.
I'm just throwing it in as more stuff to chew on. I don't believe in any way that the way we do things is the only way.
Re: One more question by Nick Griffin on Jul 13, 2001 at 5:52:10 pm
As usual, I agree with Tim. I would urge you, however, to do whatever fast talking you can to NOT be stuck eating the cost of "small" extras like stock footage. ESPECIALLY avoid being on the hook for stock footage which, depending on where you get it, can end up costing $1,000/sec or more. Of course it can be less, even much less, but this is virtually never a cost YOU want to absorb as the need for it comes from their concept.
Here's a thought: Tell your prospect that because of the incredible variation in the cost of stock footage you will really have to nail that down with them. Make this a side deal to the rest of the production so that it won't prevent them from finalizing the rest of the deal. Offer instead as a concession to pick up all of the tape costs (you know what the actual cost of raw tape is -- but they probably don't) or offer to pay the licensing fees for the music used (not as cheap as tape. but much less than stock footage).
Re: As usual... by Tim Kolb on Jul 13, 2001 at 9:06:05 pm
...I also agree with Nick. I'm certainly not advocating setting a budget in stone and proceed to eat all kinds of expenses like that along the way.
Under our scenario, we would try to determine what could be shot and what we might need as far as stock would go and get some estimates before the final proposal presentation to include that in the initial discussion. Even if the final price does remain in flux until the project progresses a bit, at least the issue is on the table and all parties have a heads up.
...eat the cost of the tape stock as a concession huh?.... I elect Nick Griffin as host of the "Negotiating" forum.
Re: Uh, Tim... by Nick Griffin on Jul 14, 2001 at 6:40:19 pm
That's "nominate", not "elect."
Seriously, my point is this: In any selling situation one is always better off keeping a lot of parts of the deal in motion and, by implication, giving the feeling to the prospect that everything is moving towards the finalization of a deal. Once you get bogged down you run a far greater risk of the sale dying. If this means giving away very inexpensive things like tape costs -- while giving the impression that they are more valuable than they really are -- then this is a good thing. Hope that provides some further clarification. Now, if you'll excuse me, I have a campaign speech for work on.
Re: We've declared Nick the winner in seven precincts in Florida... by Tim Kolb on Jul 14, 2001 at 7:41:26 pm
I just skipped a step, since I was the entire electorate at that moment, it turned out to be unanimous...or ubiquitous...or in unison...or one of those long "u" words.
I do enjoy a nicely crafted oration from time to time, however...
Re: Nickels and Dimes -- It's all about value by Mark Laskowski on Jul 11, 2001 at 4:24:42 am
Hi Brent,
Sorry for being so blunt, but you established the value of your services on the first job. Period. Now you are asking for more money. That's how it appears to your client.
The, I gave them a discount and threw in a lot of stuff for free on the last one so that I could establish a relationship with them, with the understanding that there would be more work coming from them in the future story is a mistake we have all made, but IT IS a mistake.. It doesn't work... Ever.
Believe me, I've done it, and I know many others who have as well.
The bottom line is--however you rationalize it--that you can do the job for less. You proved that. And now you've given them a pretty good idea of how much you want to add in "excess profit" ("excess" from their point of view.) We all want to get value for our money, even if its only perceived value. You do your client a disservice when you don't even give them the ability to pretend that you're a "great investment," or a "wonderful value." You gave them that on the last job. It might not even be that the amount you are asking for is too much. They might be willing to pay that if they felt it was a worthwhile investment, but I'm afraid they can't feel that way about paying you that amount now.
Remember that you establish the value of your services. Prices that seem arbitrary don't create a sense of value. So not only shouldn't your prices change significantly from job to job, but they also shouldn't change without proper consideration. If your price changes on a proposal for a job (for instance,) so should the scope of the work. (You must at least make a convincing argument about it to maintain the appearance of value in your bid.)
At this point you're caught between a rock and a hard place. If you go back to your "old" pricing system, you stand a pretty good chance of loosing credibility with them (and perhaps the job), yet taking a stand for what you believe is a fair price for your services risks loosing the job as well (and perhaps any future posibilities of working with them.) My best advice is to decide what you are willing to do the work for and stick to that. Don't change that structure with any given client. Ever. The time to raise your rates is between clients. I always accept that what I charge a client on the first one is pretty much what I will always charge that client, and I take the first job accepting that.
As regards this situation, my advice is not to back down from your current bid (well, just a little, like perhaps the 5% you suggest; to show that you want to make it work for them,) but know that you might not get this one. Flip-flopping, and going back to the "old" price is not an option at this point IMO. Even if it gets you the job, it won't make for a good working relationship. You'd be better off putting your energy into finding the next client.
What you did seems like a good way to establish a relationship with a new client, and like I said, I've done it before myself, but trust me when I say, DON'T EVER TRY THAT AGAIN! :-)
Re: Nickels and Dimes by Nick Griffin on Jul 11, 2001 at 11:47:16 am
Kudos to Jay and Mark! Both of you provided insight and analysis which is right on the money. I too learned years ago that clients virtually NEVER "take care of you with the next job." And once you start too cheap you are destined to stay cheap. One of the only solutions is to let the client go elsewhere, learn a little more about what others in the market charge, and then hopefully (a BIG hopefully) give you another chance.
From my experience this is a very long shot. The only possible way it works is if you keep the lines of communication open with this client and make sure that they in no way loose face. They have to NOT be embarrassed to return. They have to NOT think that you were right. They have to NOT think that you have won and they somehow have lost. They have to feel that their decision to work with you again is based on their own logical analysis.
This is where the "nurturing consultant" comes into play. If you are perceived as HELPING them rather than trying to sell them something, you stand a much better chance of getting the business you want and keeping it. Here's something I wrote several months ago on this in response to a similar post:
The best form of selling is that of nurturing and providing free advice. A truly "green" client has a lot more to fear than what a project will ultimately cost. He or she is usually afraid that the project will turn out badly, thereby making them look bad -- and possibly costing them advancement or even their job. Enter the "nurturing consultant."
When dealing with prospective clients, discuss a wide variety of options and the costs associated with those options. Help the client understand how to actually compare apples to apples and how to avoid comparing apples to oranges. Show them your reel and/or past similar projects and discuss the factors which affected the final quality and the final cost.
And my personal favorite: if you can get them to really open up with you, help them review the reels of those who are competing with you for the job. Praise what's praiseworthy about the competition and let the client find what's not. Discuss the various and strengths and weaknesses (!) of what you do and what you competition does. Now you've created a nurturing environment, one in which you are there to help them get what they want for what they are able to pay. Who do you think will get the business? You or the guy who was trying to sell them something?
Hope this small bit of recycled advice helps. BTW, I also agree that it's a good idea to start actively looking for one or more additional clients, for whom you will now know to NOT start off with a big discount.
-Nick Griffin, Co-Host of Biz & Marketing and Corporate Video COW forums
Re: Nickels and Dimes by Brent on Jul 11, 2001 at 3:50:12 pm
"Secondly, I had a client tell me once my cost should be less this time around for a project since after working together already my efficiency should improve."
I hear you, that sounds like something this client would say! Thanks for the advice, I'm going to talk to them this morning. I'll let you all know how it goes.
Re: Nickels and Dimes by Annie on Jul 19, 2001 at 4:36:24 pm
Tough choice to make. You can continue your discount for the second job to keep the customer. On subsequent jobs you could mark up the price by 5% so you can "dicker" with the client and give them that discount.
Better yet, hold onto your pricing without a discount - perhaps loose that client, but never offer such a discount again to others. Offer all your clients a favorable price the first time and, therefore, there will be no questions about a discount, about your price. You just don't build extra money into the price in the first place to be able to negotiate.
You will win some and you will lose some, but those clients who recognize your quality and value will be repeat clients you will want.
Re: Nickels and Dimes by Bastian Wimmer on Sep 1, 2001 at 7:26:01 pm
In his "clients and grinders" article, Ron Lindeboom eloquently describes a situation that we're all familiar with ... and you are in it right now: the client (or, grinder) who nickles and dimes you to death, all the while holding out the carrot of some undefined future job when they'll make it all up to you.
However, you are asking for specific advice, not philosophy. Here's mine:
Tell them as clearly as you can that a.) the pricing that you gave them on their first project was entirely in the nature of an introductory offer, b.) that you value them as a client and are therefore willing to make another exception if, and only if, it is clearly understood that your published pricelist, presented herewith, will be applied to all future projects. By then they either value you as a producer - in which case they will pay you a fair price - or they don't, in which case you should get rid of them sooner rather than later.
In the meantime, do whatever you can to broaden your customer base so that you CAN afford to lose them when that third project comes around.
