Should IT Providers Offer Discounts To Customers and Prospects That Are Struggling?
I was recently a Guest Panelist on an MSP Live Chat hosted by Ninja RMM, where the topic of discounting during the COVID-19 pandemic came up. While audience participation was slow to develop at first, it appeared that this topic really ignited discussion within the chat and almost started an all-out debate among those in attendance.
Many of the MSPs that voiced their opinion said that they refused to offer discounts, while others were willing to offer them to anyone in need. Some were conflicted internally, as they were already seeing a loss in revenue and couldn’t necessarily afford to offer discounts to customers, even if they thought it was the right thing to do. Here is some “behind the scenes” footage of the panel’s reaction to the topic in our post-session briefing:
My biggest take away from this discussion was that everyone seemingly had the same problem, yet there was little agreement on what the solution should be. To me, this likely boils down to each of these company’s values and what they hold to the highest importance within their organization. For example, a company who primarily values retention, is likely to offer a short-term discount. A company who values profit above all would not.
For those that may be conflicted on this issue, I wanted to highlight some of the best points and counterpoints from each side, to ultimately help inform the best decision possible:
Pros of Discounting
Higher Customer Retention
The most obvious benefit of offering a short-term discount is the ability to retain the customer that receives it. If a customer is drastically cutting expenses (as many companies are) and is considering temporarily freezing or breaking their contract, then offering a short term discount may be worth doing as an alternative. Once things go back to the new normal, it would likely be easier to get them back up to standard rate if they are being actively billed each month.
Many will argue that if the customer does not see the value in your services enough to stay onboard, then it may be worth it to let them walk. While that is a compelling argument for a time of status quo, it is worth rethinking given the current circumstances. When people or businesses are in “survival mode” as many are, they may make decisions that they otherwise would not make and it is not always a reflection on their character and what they value.
Increased Billable Activity
I was taking a bike ride through my neighborhood over the weekend and I saw a sign at a local auto repair shop that said “Free Oil Changes for First Responders and Healthcare Workers.” While this is a small, family-owned shop, it is usually bustling with activity and always hosts a large quantity of vehicles in their lot, pending service. The lot is now empty, which made me really think about this sign and what it meant for their business. The way I perceived it, was that these mechanics are choosing to work for free as an alternative to not working at all.
This is something that IT Providers may learn from if they are faced with similar circumstances. It may be in your best interest to offer customers and prospects short-term discounts on services in order to increase productivity levels of your team. If your employees have nothing to do, they are essentially costing your company money with nothing to show for it. Increasing billable activity, even below normal rates, is still better for the company financially than doing no work at all. It not only helps you keep your payroll intact in the short-term, but it also may have ways of paying dividends in the long-term as well.
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Better Business Relationships
Strong relationships are often forged at a time of conflict or adversity. This is not only true in personal relationships, but business relationships as well. When you partner with a company to help support their business, the balance of effort and compensation is not going to be “even” all the time. You may be required to put in effort when it does not benefit you in the short-term to do so.
The reason for this is because relationships are our safety net. There will be a time when your chips are down and you need help and the relationships you have made over the years will help to lift you back up. If you are not doing the same for your Customers at their time of need, then you cannot expect them to be there for you all the same. Call it karma (or whatever you call it), but one thing that I have learned is that investing in people and relationships this way has a weirdly powerful way of paying off down the road.
Cons of Discounting (& Alternatives)
Skewed Customer Expectations
Offering services below your normal rate, either once, or on a frequent basis does in fact have a way of altering customer expectations. This is true for almost any behavior when you demonstrate “flexibility.” If you have ever been too lenient on your employees and their punctuality, then you know this to be true. Five minutes late often turns into fifteen minutes late and once in awhile often turns into all the time. This is why operating a business is incredibly complicated and every decision you make has an unforeseen impact on the outcome.
I have experienced the backlash of false exceptions first-hand as an MSP and I can understand why many are hesitant to offer any flexibility on this. For those that won’t budge, there may be some alternatives to consider, such as delaying payments or restructuring terms (as fellow Panelist and Ninja RMM’s Channel Chief, Tom Watson mentions in his recent blog post). This may be a way to withhold the value of your services and show your customers that you are sensitive to their situation at the same time.
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Poor Cash Flow
As many MSPs expressed in our session, cash flow was already a challenge for many even before the world began staying home. Slow payments and loss of customers have made their situation worse, often leading them to choose between only bad options. For these MSPs, offering discounts may just make this situation worse, increasing the deficit between what is coming in and what must go out.
One way to remedy this concern is to offer your customer’s the ability to self-pay (and self-finance) at all times. This requires setting up a payment portal or sending virtual invoices that can be paid via credit card whenever needed. Doing so would allow customers to pay you the second they are able to, which increases your cash flow and allows you to offer more flexibility across the board. For example, you may be able to offer customers a short-term discount if they sign up for auto-pay via a credit card. This would allow them to self-finance at a lower principal rate for your services and would increase your cash coming in at the same time.
Flawed Company Perception
In a normal sales situation, discounting is often a crutch. It is what Salespeople do when they lack confidence in their ability to close and they need to throw out one last “Hail Mary” to win the deal. The problem with this, is that smart Business Decision Makers will smell this lack of confidence as if it were cheap perfume and will use it to get what they want from you at the lowest price possible.
One thing that we must remember, is that this may not be one of these situations. If a prospect is talking your price down, it is likely that they are doing so more out of necessity than sport. If you do decide to bend on price, be sure to authentically position it from a place of compassion and not weakness. This will improve the perception of your company rather than making it seem as if you are desperate for business and struggling yourself.