Marcus on loss leaders

…sometimes there are occasions when you should take a hit and do a project as a loss leader.

Even after going on at length about making sure that contracts are in place, tasks are recorded in detail, requirements consultations are paid for and project management effort is not underestimated – all to avoid under-charging – sometimes there are occasions when you should take a hit and do a project as a loss leader.

The two main benefits being:

  1. future profits through repeat work
  2. marketing the company (which is harder to measure)

So, when would this be?

A multi-national comes knocking

Generally speaking, I would really try to avoid cutting costs if a huge name brand asks you to pitch for work. Firstly, I doubt budget would be much of an issue for them and secondly, you don’t want to label yourself as ‘cheap’.

However, you may be pitching against a lot of other agencies and you know the allocated budget (which happens to be lower than you would like to charge). In this case you may want to lower your quote to around the budget mark simply to give yourself a chance of winning a big name client.

Promises of future riches

I would avoid any client that says ‘do this job on the cheap for me and there’ll be loads more in the future’. However, if you reach the same conclusion yourself then you might want to consider it. Repeat work is far more profitable and reliable than having to win new clients all the time.

Basically, as with all these examples, you need to try and limit how much you are discounting and be very aware of what you’re giving away so a) you can weigh up the risks and b) be able to measure whether the risk was worth it in the end.

You’ve got a new toy

If you have a new application or piece of software with nothing but a dummy site associated with it, then offering a discount to a client to implement it is almost certainly worth it.

There is nothing more powerful as a sales tool than a real case study demonstrating a product or service so, until you get a real example, it is in your interests try and make one happen.

It is also fair on the client to reduce price in this instance because it is likely that a certain amount of bug fixing will happen during the project thereby often dragging the project out longer than expected.

  • I agree with your ‘rules’ Marcus but making decisions on such projects is rarely black and white.
    While I’m all for making profit, I think to be able to develop your skills, either as a business or on an individual level, there will often be an element of ‘loss leading’ (perhaps we should call this R&D). The trick will be to know when to call time on something new or experimental and fall back on a tried and tested option that won’t suck out the profit from a project. And of course, everyone would like to think that taking on a project with a particular client will lead to more work or at least a referrals.
    For me running a small web business 18 months old, almost every project could be seen as a loss leader- whether in a bid to enhance my portfolio or provide added business benefit to the client.
    There’s an argument that clients are paying for a service and not for their web designer to educate themselves. But there has to be an R&D element and I feel this is how running such projects should be seen – just keep an eye on the clock.