As with any B2B service, recruiters flex their prices for a whole range of reasons.
And rightly so. You wouldn't expect to charge a local business the same rate for a one-off placement as a big-brand client with a multi-year recruitment contract.
Then there's the question of what the client is offering you in return. You might charge less if a client will pay you sooner, or give you better access to the team your recruiting for, or introduce you to other potential clients.
But flexing your prices should come with a health warning: price contamination.
And it's as dramatic as it sounds. If you don't control your pricing, low prices can contaminate every one of your current clients, spread through your team of consultants, and end up affecting clients far into the future.
The problem starts with a perfectly justifiable decision. You have a good reason to give offer a big client a really low rate. It's lower than you've ever gone before, but it would be a huge win for your business.
You've likely spent time weighing up the pros and cons, but you make the decision and agree the rate.
And anyway, it's not like you'll drop to that level again...
But once you've crossed that threshold once, it's incredibly hard to put the genie back in the bottle. Your consultants involved in the deal will know in the back of their mind that they can go to that rate again. Not for most roles of course... but when the pressure is on they remember that the never-before low rate is now on the cards.
Other consultants see the deal, perhaps without fully knowing the context of why you went so low, and ask themselves why they can't drop a little more to win an important deal.
Except the importance of a deal is in the eye of the bonus-receiver, so they start thinking about dropping their rate for roles that aren't quite as valuable to the business.
Before you know it, every consultant in the team is aware that - sometimes - they can go a little lower than they used to.
The contamination doesn't stop in your team though. The original client now knows that you are willing to recruit at a low rate, and conveniently forgets the context of the initial deal. So even if they only have a few roles in the following year, their expectations are set. And set low.
Over time, people involved in the original deal on the client side move on to new roles. Hopefully they remember your good service and expertise... but they almost certainly remember the rate you were able to offer them. And of course they expect it again.
The contamination continues over time. When I survey consultants about their pricing performance, they often talk about inheriting low rates from other consultants. Many of those consultants have moved on from the business, but their legacy remains in the form of low rates
(This is particularly acute when underperforming consultants are feeling under pressure to win new business and go to the never-before low rate as a last ditch attempt to put some money on the board. It rarely succeeds… but it does contaminate your prices still further).
Price contamination isn't easy to stop, but there are controls you can put in place to avoid outbreaks and reduce the chance of low fees spreading.
You need to be really clear about negotiating boundaries, and the justification for discounts. You should put in place clear authorisation processes to avoid consultants offering too much, especially when they're feeling under pressure. And you have to communicate to your client exactly why they are getting a discount, and when that deal ends.
If you're experiencing price contamination right now, or want to avoid the next outbreak, simply reply to this email and I will explain how I may be able to help.
Jon
P.S. When you're first starting your agency or moving into new markets, you will almost certainly feel the pressure to discount your prices in order to pick up new business.
However, over the long term these early clients can turn into toxic millstones around your neck, expecting low rates and contaminating the rest of your business.
If you're experiencing price contamination right now, or want to avoid the next outbreak, simply reply to this email and I will explain how I may be able to help.