The Psychology of Discounting Your Fees

PROGRAMA X TDC ARTICLE SERIES: THE PSYCHOLOGY OF FEES

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How and When (if Ever) to Negotiate Fees: An Article By ANDREW MITCHELL

Have you ever been in a situation where a client puts you on the spot and asks you to discount your fees?

For most of us, the immediate response is to panic, worried that if we push back, we might lose the job. It can make us feel insecure about the figures we’ve put forward, causing us to second guess what we should be charging.

At the very least, such a request can leave us feeling compromised. It can trigger people pleasing tendencies and blur boundaries.

In this article, I want to explore the psychology behind discounting, including what it communicates to our clients, why these requests are made in the first place, and the consequences of responding too quickly. I’ll also look at the alternatives to discounting, and whether there are any situations where reducing our fees is genuinely appropriate.

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WHAT ARE THE CONSEQUENCES OF DISCOUNTING?

Firstly, it’s important for us to understand the consequences of discounting our fees. Here I’ve outlined the most important factors that diminish our businesses when we drop our fees.

PROFITABILITY

Although it might seem obvious, this factor requires deeper consideration.

The biggest risk we’re taking by discounting without changing the scope is that we compromise the financial viability of the project. A solid fee estimate should be based on profitability measured against time and resources.

Whether working solo or with a team, we have a finite amount of time and capacity to deliver the required outcomes. So, discounting our fees without adjusting the scope means reducing the margin on the project whilst still committing to the same work, in the same timeframe, with the same level of responsibility.

CLIENT TRUST

When we discount without any compromise from the client, it can communicate that our fees aren’t founded on a clear structure. If the client can push back once and immediately get a better price, it raises the question of whether the figures were ever properly considered in the first place.

If we’ve clearly and transparently explained our fee structure, highlighting the methodology we’ve used to come to the figures proposed, it helps the client understand that our fees are based on the work involved in sustaining a professional practice. To then discount those fees too easily can undermine the way we present ourselves from a business perspective.

Conversely, when we stand firmly behind the numbers proposed, we communicate a stronger belief in our fees and the process behind them. That, in turn, builds trust.

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PERCEIVED VALUE

Value is a perceived measure. It requires the client to make a connection between the outcomes they receive and the costs associated. 

Part of our job as business owners is to effectively communicate what we do, how we do it and how that adds value to our clients. That value has many sides, from delivering elevated visual and functional outcomes, to creating a seamless experience and ultimately producing a finished product that connects emotionally and endures over time.

When we discount, we can unintentionally devalue the expertise and experience required to achieve these outcomes. We also risk setting a tone for the project, where the client feels emboldened to challenge future fees, variations or additional services.

INDUSTRY STANDARDS

Discounting has deeper ramifications on the industry, causing a “race to the bottom” with fees.

When architecture and design studios drop their fees to be competitive, it lowers the benchmark for everyone. It reinforces the idea that design fees are flexible, inflated, or open to bargaining, rather than being grounded in the real work required to deliver a professional service.

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WHY CLIENTS ASK FOR A DISCOUNT AND HOW TO RESPOND

To better position ourselves to respond professionally to a request for a discount, it helps to consider the reasons why clients commonly make the request.

Rather than being defensive or reactive, coming from a place of curiosity will help us understand the driving factors behind the client’s desire for a discount. This knowledge enables us to meet the client where they’re at, offering alternate solutions that might lead to a workable outcome.

The following are the most common reasons clients will ask for a discount.

REASON #1: LACK OF UNDERSTANDING

If a client has a lack of understanding about what’s entailed in our work, they might struggle to see the value of our services.

Sometimes the issue isn’t really price, it’s a lack of understanding around what sits behind the fee. If a client has never worked with a designer before, they may only be seeing the visible outputs, rather than the thinking, coordination, documentation, communication and responsibility required to get there.

RESPONSE: 

Educate the client by explaining your design process and providing examples of the outputs (documentation packages, presentations, etc).

Offer transparency in the method you use to calculate your fees.

REASON #2: CLIENT BUDGET

Our fees might simply be out of their budget.

This doesn’t necessarily mean the client doesn’t value what we do. It may simply mean that the service level they want and the budget they have available are not aligned.

RESPONSE:

Offer alternative options to reduce your fees, including reduced scope, either by reducing the size of the project, or reducing stages, or by phasing the project over a longer period.

Never allow the client to “cherry pick” your services. Always come back to them with your own suggestion for prioritised scope and services based on their budget.

REASON #3: PRICE COMPARISON

The client may be considering other design studios and “shopping around”, comparing multiple proposals and trying to assess whether they can get a similar outcome for a lower fee elsewhere.

RESPONSE:

Ascertain whether the client sees you as the right designer for the project, or simply the right designer at the right price. Be prepared to step back from a project where price competition is the deciding factor.

REASON #4: BUSINESS CULTURE

Negotiating is a common part of many business practices. There can also be social or cultural norms that make negotiation feel like a standard part of the process.

In these situations, a request for a discount may not be a criticism of your service, or a sign that the client doesn’t value what you do. They may simply assume that all fees are negotiable.

RESPONSE:

Understand that it’s not always a personal attack, or an indication that the client doesn’t believe in you.

Stand your ground and reiterate your terms and pricing structure for the current scope. Offer alternative ways to reduce your fees by reducing the scope or phasing the project over an extended period.

REASON #5: POOR DESIGNER-CLIENT FIT

Most importantly, requesting a discount may signal a poor designer/client fit.

Before immediately assigning the client into the “red flag” category and sidestepping the project completely, doing some investigation into the reasons behind the request may still lead to a workable fit moving forward.

RESPONSE:

If the client consistently resists your pricing structure, doesn’t respect the way you work, or is primarily focused on getting the lowest possible fee, this may be an indication that they’re not the right fit for your studio.

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SITUATIONS WHERE DISCOUNTING IS VIABLE

New design studios may find that getting their first project requires tapping into immediate networks of friends and family. Discounting may be a viable way of securing work that might not otherwise have been made available to them, enabling a less experienced designer to build a reputable portfolio.

If a designer is doing work for a charity, there can also be good reasons to provide a discount, though not all charities will request one.

Ensure that the clients understand the extent of the discount provided. It’s also important that the discount is intentional, not reactive. It should be a considered decision rather than a panicked response to pressure.

STRATEGIES TO PREPARE FOR THESE CONVERSATIONS

Robust processes for vetting and onboarding clients will help to identify price-sensitive clients, and those who may not be a good fit for your practice. Asking the right questions about their expectations will create opportunities for open discussion around costs and compromises.

If you have a sense that the client is price sensitive, prior to delivering your fee proposal, consider ways to reduce your fees by reshaping the scope. This enables you to be proactive rather than reactive.

For example, you might advise them to reduce their scope by decreasing the rooms or areas to be covered. 

You might also prepare a phased approach to the project, allowing the client to commit to the most important parts first, with later stages deferred until budget allows. In this way, you’re not discounting the value of your work, you’re adjusting the shape of the service to suit the client’s circumstances.

SUMMARY

Discounting our fees too quickly can weaken profitability, undermine trust, and dilute the perceived value of the service we provide. It can also set a tone for the client relationship that becomes increasingly difficult to manage as the project progresses.

In most cases, the preferable alternative to discounting is to reshape the offer, whether through reduced scope or phased delivery. And in the situations where discounting is appropriate, it should be deliberate and well managed, with clear boundaries around what is and isn’t included.

Ultimately, the goal isn’t to “win” the negotiation. The goal is to protect the integrity of your business, whilst guiding the client towards a solution that is workable, professional and financially viable for both parties.

To check the health of your current charging process, take the TDC Charging Health Check Questionnaire.

If you’d like to learn more about empowering fee estimation practices, we have an Online Fees and Margins course, or you can reach out to me at hello@thedesigncoach.com.au.