Many business owners stay firm on their price or try to negotiate any possible advantage that leaves them ahead, but one entrepreneur chose a different route that has been paying off.
"Sometimes, the fastest way to win is by losing," a software development shop owner told Reddit while describing how "losing negotiations" has boosted his business.
The software development shop owner knows he has to keep his rate above the 20% margin line. He has to keep that margin, but if a customer bargains, he gives them their price as long as it stays above the 20% margin line. It's an interesting strategy that defies what many people have been taught about business, but not everyone agrees with this approach.
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How The Software Development Owner Makes Money By Losing Negotiations
The software development owner makes money because, by not playing the halfway game, he increases his conversion rate. More customers sign up with him since he's not haggling over the price.
"No tricks, no drama, just exactly what they asked for," the software development owner said.
His wife initially didn't like the idea of just handing out discounts when customers requested them. However, the money has been rolling in, and she's now on board with the plan. The entrepreneur summed it up as a way to build loyalty. Furthermore, half of those clients came back with repeat work immediately and referred their friends.
Not haggling over the price and small details results in a smoother relationship between a business owner and their customers. The software development owner knows this lesson well and loses negotiations so he can win customer loyalty and referrals.
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Stay Firm On Your Price
Although the concept of losing negotiations has worked well for the original poster, not everyone was on board with this advice. The top comment came from a business owner who is assertive about their price and doesn't bend for anyone.
"I charge what I charge," the commenter said. "Take it or leave it. Over the years, I've developed hundreds of very loyal, good-paying clients instead of thousands of cheapskates."
Someone responded to the comment by encouraging people to look up the cheap customer paradox. This paradox asserts that customers who focus on the lowest price can be nightmare customers. They may want to squeeze out as much from you as possible without paying any extra. Meanwhile, your highest-paying customers may be the best ones to work with.
Prices are also a function of supply and demand. While undercharging may make sense when you are getting started out and need testimonials, it's not something that you should do forever.
"When you're big, you simply charge enough to balance out your demand. Too much demand – time to expand or raise prices," one commenter said.
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Getting Them In The Door May Be Worth It
Losing negotiations may seem unfeasible for some business industries, but one commenter who knows the intricacies of the software development industry says it's okay to lose some money on the front end to get a customer through the door.
"Once they pay you, they’re ‘in the door' and will end up needing a lot more than they probably thought," one commenter said. "Whatever you negotiated initially is just the start to a bigger and more profitable relationship."
It's hard to convert a prospect into a customer, but it is easier to win over a customer who has already done business with you. Other services may be more expensive and require additional work, which can increase the average lifetime value per customer. Companies that operate under this business model may make more money in the long run by not haggling on price in the short term.
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