Banking

Should you charge the same rates to all clients?


Do you have "One Rate to rule them all", or do you vary your rates by client?  There are a number of good reasons to bill at different rates:

  1. The kind of work you do for each client varies, and the price that each of these markets will bear also differs.
  2. Your clients are located in different geographical areas, which affects the supply and demand for your class of services.
  3. You've had some clients for a long time, and you haven't been able to bring up their rates as quickly as new client rates have risen.  Besides, you like to reward long-term clients for their loyalty.

Of course, you can also present arguments for the other side of the coin:

  1. Keeping everyone at the same rate makes billing and accounting a little easier.
  2. When a prospect asks for your rate, you don't have to think about it.  You may be able to keep clients from trying to negotiate you down by responding "that's my rate".  If everyone else is willing to pay it, then so should they.
  3. You don't have to worry about keeping the rates you charge other clients a secret ("and in the darkness bind them").

In my opinion it depends on how homogenous is your client base, as well as the types of work you perform.  Because the best determinant of price is the value your client perceives, the more their needs differ the more you should be willing to vary your rates.  Refusing to tailor your rates to your clients can create a huge disadvantage, either in potential income lost or in too much price resistance.  On the other hand, if what you do is basically the same thing for everyone, then your services can become somewhat commoditized and you gain some advantage from having a uniform rate that you've researched and tested on the market already.

Do you ever negotiate your rate?  Lots of bright people will tell you that Everything's Negotiable, but I try not to let my clients feel that way.  From the time we first start talking, I begin thinking of what to say when the "how much" question comes up, so I don't have to fumble around for an answer and increase the perception that I'm flexible.  At any one time I tend to start all new clients at the same rate, just to make that moment easier on myself.  When I'm increasing an existing client's rate, I give it long thought before saying anything -- and then announce my new fee with at least a 30-day lead time.  But I must admit that a couple of times I have had to negotiate with their response.  It helps if you have a number of other clients you can fall back on should the one you're dealing with say "forget it".  Even though so far that's never happened to me (knock on wood), having the ability to walk away from the negotiation enables you to present your case more confidently and assertively.  After all, you don't want to lose your precious income.

About

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

24 comments
Ryan.McCloskey
Ryan.McCloskey

I didn't read this blog entry completely but basically what you're asking is, "Should we employ price discrimination when dealing with different clients?" Young in my college education, I took Marketing 101 and the concept of "Price Discrimination" as it is called is not a very new comment, nor is it looked down on as the name might suggest. One of the main reasons people should 'price discriminate' is due not necessarily to geographics, but more importantly to demographics. If I have a senior citizen who I know is on a fixed income ask me to fix her computer, I'm going to charge her well below market value of my services. Why? Her loyalty is most important, and 1 referral from her could lead to a client that may be willing to pay way above my market value. Going into a prestigious law firm charging the same fee I charged the fixed income lady wouldn't make much sense on both sides. Why would I sacrifice a higher pay if the client may be willing to pay much more? Furthermore, if I charged the prestigious law firm the same price I charged the fixed income lady, my credibility is on the line as a professional. In the end, "Price Discrimination" is a very important concept and if employed properly, can be a win-win situation on all levels.

JohnMcGrew
JohnMcGrew

...for different services. The level charged depends mostly on the PITA (Pain in the Ass) factor. My favorite clients get the "A" level. The PITA clients get the "E" level. New clients usually get the "B" or "C" level until I decide where they'll fall in the long run. If they deserve a better rate, then when I raise my rates they instead move to a lower level. My cheapest fee at each level is usually "phone" time, then there's "consulting", "programming", and the most expensive is "Site Visitation". Ways to make it to the "D" or "E" levels usually include wasting my time, not paying on-time or quibbling about the bill, or just not being any fun.

barry.bartlett
barry.bartlett

This is a really good question, but easily anwsered by me. If I want to get clients to come on board then I have no choice to lower the rates for certain smaller busineses. They don;t have allot of money. Besides if I don;t take them on then someone else will. I don't charge alot for my consulting ($75.00 per hour per consultant) because of certian specific reasons but I have had to lower my rate even further in order to get that client. Thing is, I alway end up getting another client from that client and so on. So to me it is smart to have different rates for some clients. I too have rates for Charities, and different types of businesses that have speific equipement, plus I even base it on Location of the business, what specific needs they have and what the cost are to get there, etc. Thanks, Barry

ahiles
ahiles

There are several more good reasons to vary rates: - the client is a slow payer and you need to cover cashflow costs - the country operates withholding tax which again involves cashflow costs - the client is paying only when deliverables are accepted, which they can procrastinate on and create slow payment and cashflow costs - you don't really want the job but don't want to alienate the client by refusing, so you quote a high rate - the cost of performance bonds or retentions has to be covered - forex costs and possible currency loss costs need to be covered - as one intermediary firm put it to me "this is a prestige client and we wouldn't like him to be disappointed at the size of your bill!" I tried very hard not to disappoint.

Nonapeptide
Nonapeptide

...who kept getting consulting calls to fix an old manufacturing plant's Microsoft Mail server. Keep in mind that this is about the time of Exchange 2003. The consultant didn't really like going to the place, but didn't quite have the heart to walk away from it. He was, after all, one of the only people in the city who knew enough about MM. The hardware that the Mail server was on was breaking down and the mail server software was less than reliable. Fed up with going into the seedy part of town and dealing with a rather rough work-force on the site, the consultant raised his price to something like $250 an hour (with the standard 1 hour minimum). He walked in and fixed the problem in 15 minutes and left. His strategy was that when the $250 bill for 15 minutes of work hit the manager's desk, he'd be more inclined to purchase more updated components an relieve the consultant of the irritation of going to the scummy place. The manager was thrilled with the whole thing. "Yeah, that guy was great! He just sat right down and a few minutes later we were up and running!" Go figure.

Sterling chip Camden
Sterling chip Camden

Do you charge a retainer fee? If so, how do you determine it? I never have used a retainer, simply because it makes me feel guilty when I'm not available to my client. But maybe I should get over that. What do you think?

derek
derek

I have a great client who is an Architect. he has a sign posted in his office that says, " Our only product is our time. Please don't ask us to give it away." The best clients can be the ones that bill by the hour as well.

bob
bob

I have three basic tiers for my rates, standard, non-profit (10% discount) and "friends and family" (low hourly rate, includes my church members and my neighbors). The first two include a 10% discount for pre-paid work under a support agreement. The problem that I have run into, is when bidding on government work (State, Local and US Federal) the agencies involved demand that you bid the lowest rate your charge any of our customers. If you win the bid, they are entitled (under standard terms of your contract) to review your books to retrieve proof that they are getting that rate or lower! My solution has been to stop bidding government work.

Mister Q
Mister Q

I had a client once, who had a niggling communications problem. So finally, dragged together several pieces of equipment, built a testbed, and replicated the problem. Once that was done, worked out a fix. Sent details to the SW Vendor, who took 2 years to fix it, but I didn't mind. Word got out that I had fixed this problem, and I got a call from a law firm. Same problem, could I come and fix it. Didn't want to do it, so gave them a "silly price" - $5000 - they said "no problem" when can you be here... I felt guilty, so went there fixed their problem, but spent 2 days tidying up all sorts of messes around their systems. Well, the word was out, Two more law firms called - Can I come and fix their problems. The word was out, they new the price... So I turned up, Chatted with the person in charge, they asked if I wanted a coffee, and went to get a PA to get it. GOt back, and asked when could I start on fixing the problem - I told them, I had done it while they were ordering the coffee... $5000 for 5 minutes work, they said? I said, no the $5000 is for the thousands of dollars of equipment that I own and had to reconfigure to find and debug this problem in my own "home" lab, it was for the several days of setup and debugging. It was for writing a test case, and a binary patch, for the Software Vendor... They had a check for me, before I had finished my coffee...

Sterling chip Camden
Sterling chip Camden

that when they pay more, they're getting more. I've had more than one occasion when I raised my rates and had my demand go up instead of down.

derek
derek

I picked up a new client a few years back that was unhappy with their current consultant but couldn't quite put their finger on why. I went to their office where they had 10 XP pro systems. ...connected to an 8 year old novell pentium compaq computer with a 1.2 gig hard drive. they were using it to share their office files. It even had a 10 card in it. Long story story they were getting $2000 worth of support bills every month cause the tech firm was making a killing off of support the old crap without telling the client that they could buy a $500 cpu, $1000 sbs server and then drop their support costs to 25%. I had then upgraded in days...they have over the years grown and are one of my best and most loyal clients. ..but I have seen this system before....more money in patching a problem than fixing it.

barrybartlett
barrybartlett

Hi there. When I charge retainer fees it is mostly to do with making sure that I do not get half way through a project and have the NEW client bail out of the project and leave me hanging with a bunch of service bills for contractors and employees that worked on thier project. To help solve this issue with retainers, I recently have put a new policy in place for my company that will help alleviate the risk involved in large project that involves allot of services. This new policy involves calcualting the project as close I can to the cost of the services (labor cost) I need to complete the job and then requesting at least 30% of that estimated cost. To make the client feel more at ease and hopefully understand my reasoning for this, I outline the details of the project in a detailed documentation report and I break up the project in three phases or more and then inform the client that the estimated funding for each phase will be recieved before the start of each phase. You just bill them in the end for the remaining services. This will help garentee your paid and your debt stays very low. If the client says they have an issue with that then just mentioned to them that the 2 main reasons why you do this is becuase 1) you are a small company and cash flow is what makes your company operate successfully and is the main reason why you can offer such wondering rates to them. 2) In the past you have been a victom of this and you had to put this policy in place for your own protection. If your like me then you wouldn't have to lie about this because you have had clients not pay you Im sure. :) Right now my company policy is that I receive all funding up front for all hardware and other exceptional tasks needed by the new or current client. Funds for tasks like wiring are also recieved up front because with hardware and wiring I can give them an exact price based on my supplier's and venders cost to me. Plus you can't really start much without the hardware in place anyways. This is also good because now you would have the profits from the hardware to help fund the cost for any employees or contractors that you may need for a specific job. You cna also mentioned that you are no differnet than larger companies like DELL or IBM of which will require payment before you get the hardware shipped to you. So if you play the system right you are technically never in need of a retainer (per say) but rather use the funds for the hardware and services that they know they need and have already budgeted for. Plus asking for a retainer kind brings out that "I don't trust you right now" thought. I did have a client pretty much beg and pleed one time to have me fund the hardware up front (Roughly $20,000) and I said no right to the end (in a very professional way of course) and in the end they came up with the money, making it risk free for me. Hope this helps. Stick with getting the hardware funds first then possibly the estimated funds for each phase of the project. This will help you stay in business longer believe me. Thanks, Barry.

karl
karl

I strive to secure a retainer and have found that the clients appreciate it as much as I do. It stabilizes your cash flow, allows you to provide a higher-level priority service and, as I do, schedule a regular on-site visit to keep a pulse on the client. If it is structured properly, the client will receive a level of proactive support and known expense that is what they ultimately want. I also set a cap on the time spent and provide a discount hourly rate for these "Proactive Support" clients. Ad-hoc clients are charged a higher hourly rate.

reisen55
reisen55

I use retainer agreements as long term commitment tools and for financial sanity on both parts of the agreement. The client and the consultant are on the same page. But if I have a small account that I can support (i.e. a used book store with one computer that is within 2 miles of much larger business), then I offer a lower rate to the smaller business. It may be a sense of guilt ethics after working for an old MicroAge dealership ages back that horribly gouged it's customers on occasion. This is not my standard rate of course and I rarely use it at all except when the account is obviously small and near enough other business to self-support - and a bit of marketing good will. Doesn't hurt, too, to keep the Computer Gods happy and content.

Sterling chip Camden
Sterling chip Camden

Yeah, if your client bills by the hour, then they know how precious those billable hours are. Unfortunately for me, most of my clients operate with their customers via a support agreement -- so they're used to the idea of "you do everything you can for the customer without charging them extra."

BrokenEagle
BrokenEagle

I charge all my customers the same rate and then give my favorite charities a 50% discount. The charities get a bill at the full rate. The line under the labor charge is the discount with a negative number for half the labor amount. Anyone can have my best rate. Not everyone gets a donation in the form of a discounted bill.

techrepublic
techrepublic

It was the same when I used to do home renovations. When I first started, I gave competitive (lower) prices to get the jobs, but after only getting 1 in 10 jobs I started giving higher estimates and suddenly I was getting 1 in 3 of them. Many people have a price in their head and if your price is too high or too low, they say no. This applies to products and services, but much more to services. Most people do relate price and quality.

mziuk
mziuk

I agree. I am a manager at a software development company in South Africa, www.whitewallweb.com. We are a medium-sized firm and recemtly we have been targeting large corporate clients. We consider ourselves a premium brand; high quality, high price. However, when presenting our rates(low) to larger organisations they got the impression we would provide a low quality service. Up the rate and we were onto a winner. Has the product changed? No. Perception? Definitely. The challenge now is to set the right price for the right customer without creating a negative perception.Have we mastered that? No

mziuk
mziuk

I agree. I am a manager at a software development company in South Africa, www.whitewallweb.com. We are a medium-sized firm and recemtly we have been targeting large corporate clients. We consider ourselves a premium brand; high quality, high price. However, when presenting our rates(low) to larger organisations they got the impression we would provide a low quality service. Up the rate and we were onto a winner. Has the product changed? No. Perception? Definitely. The challenge now is to set the right price for the right customer without creating a negative perception.Have we mastered that? No

Sterling chip Camden
Sterling chip Camden

CONSULTING: "When you can't be part of the solution, there's plenty of money in perpetuating the problem." Not that I would ever do that.

Sterling chip Camden
Sterling chip Camden

... makes me glad to be a software guy. The costs and risks of accepting payment later aren't as apparent when dealing only in services, like myself. But they're still there. Thanks for your comment.

Mister Q
Mister Q

Routinely I talk with headhunters who "ask for my going rate". They get confused by the answer "It depends". It depends on how much the client is hurting, how unique my skills are to solving their problem, how soon they want me, how long they want me for. Is it about the Money? Nope, there are a number of "Pro-bono" clients that I have, although I really only do that for bonafide "social good" clients. ON a couple of occasions now, I have gone in for initial discussions, immediately cut through the .... and said "you need to do this, that, the other, and this is why..." ANd thats the last I hear (until I see the actually phrases that I have used quoted in a Job ad from that client)...

Sterling chip Camden
Sterling chip Camden

It's always good to figure on not taking home every penny of your rate. Besides cutting breaks for clients or dealing with non-payment, you've also got the overhead of running a business and providing for your own benefits.

JimTheGeordie
JimTheGeordie

Having spent an IT career mainly in the large enterprise field, I am now retired (sort of!) and assisting small business people. I have evolved a flexible billing practice which might be useful. My nominal rate is quite high, towards the top of the professional scale. However, I tune it to the particular circumstances in two ways. First, I offer discounts on payment terms, delivery flexibility and so forth. Second, I do not necessarily charge for every hour worked, writing off some time to research, trialling alternatives and so forth. My expected average income is about 2/3 - 3/4 of my nominal rate, but when everything works perfectly - hey, I have a nice little bonus!

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