Discount for upfront payments

[DerekDuvall]

Hi All! I'm in a relatively good situation where I did project work for an overseas customer and now they would like to buy some support hours from me. Multi-year. Hurray. They are otherwise quite flexible in terms of payment. Since I am a bit worried about the state of the global economy I thought about offering them a discount if they pay upfront. I am not afraid of the relationship going sour, I am afraid of a recession and a corporate half ton load just cancelling any contracts they can. What are your thoughts on potential discounts that I should offer to make such a deal attractive? TIA (English is not my native tongue, so apologies if this short passage was more difficult to read than it should have been)

[jamesbrown]

Yeah, I see no conceptual problem with that, you can really arrange it however you want and manage risk in whatever way you deem fit. Contracts are infinitely flexible in that regard, although you may want to get a legal T&Cs review. If they are buying hours, I suggest they should be buying these hours as an option, not paying for hours of support actually delivered - in other words, similar to a retainer.

[courtg9000]

nothing wrong with this for itself.
A good idea actually.
Not sure about the level of discounting.

[ladymuck]

As JB says, you could do it as a retainer for a set number of hours a month / quarter/ years.

Hopefully you know how many hours you'd expect to spend supporting the client. You could offer them some of those hours at a discounted rate and then say any hours over that are at the full rate.

For example:

You expect to provide 50 hours support a month and your usual rate is £100 an hour.

You ask them to pay for 40 hours at £75 an hour up front and then if they need more support you bill them at £100 for the extra.

There's loads of ways you could do it. Rolling four week billing cycles, etc. (could get complicated).

Also have a thought about what happens if they only use 20 of the 40 prepaid hours. Does it roll over, are they lost, do you refund?

[NotAllThere]

Also have a thought about what happens if they only use 20 of the 40 prepaid hours. Does it roll over, are they lost, do you refund?

Although I wasn't prepaid (nor offer a discount), I did have minimum number of hours a client had to pay for per month. If they didn't use them in a month, they lost them. If I did more, they paid the additional. Of course, I had to be available for at least the minimum hours.

[northernladuk]

If the client needs it then I don't think a discount to start really makes any difference. I'd be offering something to keep them interested later down the line. Many clients, particularly public sector write the contracts with discounts over years. You are bedded in, the work becomes part and parcel so why shouldn't they pay less. So I'd be looking at writing in a year 2 and 3 discount, 10% year on year or something. Year 1 they want the work they will pay, year 2 they may re-visit the agreement but a 10% discount gets it signed, year 3 they will be looking at costs and you are offering another 10% so it gets signed. Hopefully by year 3 you are so embedded they can't get rid so stop the discounts.

[ladymuck]

If the client needs it then I don't think a discount to start really makes any difference. I'd be offering something to keep them interested later down the line. Many clients, particularly public sector write the contracts with discounts over years. You are bedded in, the work becomes part and parcel so why shouldn't they pay less. So I'd be looking at writing in a year 2 and 3 discount, 10% year on year or something. Year 1 they want the work they will pay, year 2 they may re-visit the agreement but a 10% discount gets it signed, year 3 they will be looking at costs and you are offering another 10% so it gets signed. Hopefully by year 3 you are so embedded they can't get rid so stop the discounts.

That's a nice idea.

I also realised after my post, but couldn't be bothered to edit it, that you could charge £125 per hour for the unpaid support hours to recoup the discount

[northernladuk]

That's a nice idea.

I also realised after my post, but couldn't be bothered to edit it, that you could charge £125 per hour for the unpaid support hours to recoup the discount

Exactly this... or charge them 15% for year end face to face reviews which are <cough> omitted </cough> from the main support offering . In a nutshell offer a discount but a ton of additional offerings they can't do without that are more than the discount.

Once you are in you can the bid and over charge for any piece of work whether the client needs it or not, throw some under-qualified noobs at it and do a god awful job. Rinse and repeat and you'll be giving TCS, Cog etc a run for their money then.