Cut the Fee or Discount It. What’s the Diff?

October 20, 2009

I almost put this post as a comment on an article about the ‘right way’ to discount fees. I don’t want to get in a direct public pissing contest with the author but it does deserve rebuttal. It’s almost embarrassing that people who negotiate the other side of our agreements can read articles that assume they are dumb enough to fall for old tactics like ‘mark it up and give a big discount’. Our clients deserve better than that.

I know there’s a whole school of thought that would like to re-educate me for doing all our business at 25% and I accept that. I say that first because, while I am disagreeing with that author, I know ‘my way’ isn’t necessarily the only way but it works for us and it covers our costs. Less than that doesn’t cover our costs and we choose not to build in “throwaway discount money” by claiming to work at 30% and then not getting it.

I can tell you that life has been much simpler in the past 6 years or so since we just stopped negotiating on price at all. Telling our established clients that no one gets a better deal than they do goes over very well with them and the new ones appreciate it too after they have heard it a number of times and they finally sign up. I’d rather struggle to help them understand our service is worth what we charge than struggle with the idea that they can decide that.

I am struggling a bit with this article that says never lower your fee and then explains how to do it. None of the people signing our agreements are stupid (this guarantees input from Tom Keoughan). If anyone actually thinks there’s a difference between a 30k invoice with a 40k “sticker price” and a 30k invoice with a 30k “sticker price” it would have to be a person living in an earlier age.

It took me many years to really believe what we do is worth what WE say it is. It is kind of sad now to see someone encouraging the idea that we should be telling people essentially that “We priced our product so high that we can knock off 1/3 off it and still do the job and make money.”

Just yesterday a prospective client who had hired a new HR rep told us “everyone else is charging us 18 and 20%”. She’s been there 3 months and has not paid any fees at all. Before she got there they saw several of our MPC candidates at 25%… with signed agreements…She’s just throwing out words that mean nothing. Just like the article I am referring to.

Neil, next time you hire a consultant,tell him his commission rate is 70% but that you are taking a discount that will net his commissions at an actual 50%.
Or tell your client to offer your candidate the 150k he wants to take the job and then just discount it to 130k on the check stubs.

Finally, you have not invoiced someone 30% unless you get 30%. Let’s leave this other stuff to the people who sell rugs,furniture and jewelry.

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2 Responses to “Cut the Fee or Discount It. What’s the Diff?”

  1. Tom Keoughan Says:

    Dave,

    Sorry, I won’t be able to spice up the discussion for you. We do things differently than most. While I am more than willing to discuss that with you, I am not interested in discussing how we work with the world at large.

    As for “people signing our agreements being stupid” – most aren’t, some are but many are: 1) inexperienced, 2) way too busy to be paying proper attention, 3) not concerned about what’s in the contract as long as the final percentage is what they want, 4) feel free to add your own.

    I’ve been hearing a lot of this 20% and even 15% nonsense too. We haven’t cut prices – we turn them down. Companies seem happy to pay our rate after the “Discount Dave’s” fail to successfully complete the search. When the conversation is about “lowest price” try to convert it into “best value”.

    Tom Keoughan
    http://www.toyjobs.com


  2. Hey, Dave. In the interest of bloggery etiquette, I am happy to provide a quick reply. I enjoy when I get feedback on my blog, regardless of the content (excluding Spam for Viagra, etc). We all have our opinions, so I am happy, sincerely, that you have passion about the subject either way.

    My point was made in assuming that most recruiters do indeed have a max fee and do indeed often discount (some more than others).. In fact, statistics show that if one only had a flat fee, they would be losing business, since you would clearly be losing some business that you could have priced higher. If we believe that most recruiters try to sell their “full fee” (I didn’t make up the term “full fee” either) then by definition, if and when they do lower a fee, they are indeed saying already that “we priced our products so high that we will knock of 1/3 and still do the job and make money”. They already do!

    I do come from the school that you should always try to get the most you can and you should price your fee based on different elements (how new the client is, how long in the search process they are, how specialized or detail the criteria are, etc).. I can tell you from my years of dealing with thousands of recruiters that they just don’t have a one size fits all fee.. And, as the old saying goes with negotiations “if you don’t ask , you don’t get)..

    I also have a video on fordycetv about perm fee negotiations and how i believe you should truly never lower your fee and get good at getting the full fee all of the time.. check that one out. This article compliments that for when they have to. So, my point, again, was that you should stick firm.. and if you have to agree to a lower fee, for ex, to get a foot in the door and prove yourself, then if you ever want to raise it in the future then let them know your fee is 30% but you have agreed to a first order discount of x.. That is the way most businesses work. conferences, autos, jewelry (as you say), insert product here. I also always want any of my clients to know that they are getting a good deal because of their volume.. so, hence, the “priority client discount” or whatever you want.

    And, regarding hiring a consultant and telling him that he has 70% but gets 50% also happens all of the time. There are very creative plans that make a plan look better than it is.. Many of the large firms have hired firms to come up with commission plans that appear better than they are.. Ie having bands of commissions and showing higher rates at higher levels.. When the bands are changed, even though the effective payout is much lower, people focus on the raw numbers.. you also have commission plans after hitting a “sliding budget” or a bogey, etc, which also lowers the effective rates.. Many things are often creatively packaged in different format.s

    Like anything in training, you like some stuff and you don’t like other stuff. Some works for some and not for others. Some swear by some material and some swear at it.. I have had countless of recruiters tell me that this is a lifesaver and helped them raise fees or at least get more confident at trying to sell it higher.

    I don’t suspect this will convert you, but I enjoyed the rhetoric.

    Best,

    Neil

    ps. If any of your readers want to see more of my stuff, I have an 8 week online free training at http://www.thedynamicsale.com


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