Discounting is for dummies...
I don’t mean it really, if you do discount then you aren’t a dummy, I just wanted to get your attention. I am however tempted to email images like this one to potential new clients when they do question my fees and you should feel the same way, and hopefully get to a point where like me, you politely decline to reduce your fees and enter into that race to the bottom where no one wins, least of all the person or company making request in the first place. So why do people do it?
First and foremost, fear. The fear of missing out on the new business and allowing themselves to be negotiated down either to match a supposed competitors’ quote or simply because they want it cheaper than you have quoted.
Secondly, people make their proposition too expensive to start with, so an example, take estate agents. I know plenty of companies whose published sole agency fee is 2%, and one they quote when sat in the living room, knowing from the very outset that they will have to negotiate, in fact that is the strategy, start high and come down, being seen to be offering a discount. It is likely some hope that perhaps 1 in 100 will blindly agree to pay it and for that reason alone, it is a worthwhile gambit. They also believe that is this gets them to a desired result of 1.25% - 1.5% which is their actual fee, then it is worth doing.
However, there are several problems with that approach. Most importantly is creates a negative cultural undertone and vibe within the business. Your teams get into the habit of discounting to 99% of the prospects they talk to, they become conditioned to accepting and volunteering that they and their service isn’t worth 2%. That’s not a great mindset to be in and makes any proud defence of your fee and service virtually impossible to do as they won’t believe it and won’t be capable of passionately standing their ground when they or you want them to. Not a good place for your teams to constantly walking around the business thinking, “we aren’t worth it”. In time, your teams then start to believe that they aren’t as good as other estate agents, that the service they offer isn’t as good and the discounting starts spiralling out of control.
Furthermore, if a homeowner has been quoted 1% and expects you to match it, then that’s still the place you will end up if you want to win the business in discounting mode. The 2% strategy is not the quickest route to 1.5% because in reducing your fee by 25% in the first place, any half savvy vendor will know that you are a discounter, and it only becomes a matter of time. The quickest route to 1.5% if that is your goal is to quote 1.5% and passionately justify why you won’t negotiate if they question it, which brings me to the final point.
Thirdly, it is only a matter of presentation. A mentor once advised me, “An objection is simply a request for further information.” Put another way, if someone questions your fee, whatever it is, it is simply their way of saying, “you haven’t done a good enough job of convincing me you are worth it.” Request for discounts are never about affordability, or wanting cheap, even if that’s what they tell you.
If you are reading this and are an estate agent, the next time you do a valuation, if you don’t already, pay particular attention to the brands the owner has already bought into. Mercedes parked outside? Bang & Olufsen TV in the lounge? Miele dishwasher in the kitchen? All testament to the fact that they are prepared buy expensive products or services if they are convinced they are worth it, as none of these companies discount, ever.
So those are the reasons people do it, but why shouldn’t you do it? Let me answer that in part by telling you how I embarked on a campaign to raise income when I was MD of Lauristons by way of illustration. When I say raise income I mean I had a strategy to raise my the average price of the properties I was lettings and selling as well as charging more for the service we provided and the vehicle I used was compliance. Yes, boring old compliance, that can’t possibly make any money? Well yes it very much provides a commercial and competitive edge for estate agents and lettings agents where the standards in the industry vary so much whilst legislation and red tape increases year on year. Not only that but I believe that cheap fees attract less committed, lower quality clients and dissuade those that would pay more from contacting you. That doesn’t change whatever industry you are in.
So, compliance was my vehicle towards charging more not less. Instead of having my teams feeling undervalued and feeling they needed to compete with 1% agents, I instead wanted to empower them to truly believe that we were the best estate and lettings agent in the town, to be confident in being more discerning about which properties we took on and which clients we wanted to work with. For that to happen though, they needed that belief, it was never going to happen with me paying them more or just telling them to do it.
At the time I hadn’t long been appointed the MD, so I was focussed on a complete reset for the business where the proceeding years had been very unsettled. So, it was a 3 year plan. I spent a good proportion of my time changing the systems and processes, the focus, sharing my vision and message to the teams, and as importantly to our customers. I championed the need for us to be compliant, to stamp out practices that had been traditionally ingrained into the industry that were frowned up whether the handling of offers, the type of canvassing we conducted, or treating buyers and tenants differently to landlords and sellers.
Complaints were welcomed, not ignored or treated with disdain. We changed our training, conducted workshops, started a project to get everyone through their level 3 technical awards with the Association of Residential Lettings Agents (ARLA) and the National Association of Estate Agents (NAEA) to give them the tools and confidence to exercise a duty of care to all of our clients and customers. Google reviews became the new currency of success, commissions followed, league tables and good news stories did the rounds.
I provided legislative updates and only talked about good practice, being the best we could be, not about house sales, percentages and deals that was the usual language of measure in estate agencies. Process and compliance manuals were written, circulated and trained in, we rebranded our terms of business and much of our other marketing material, smartened up the offices, introduced a dress code, enhanced the teams work like balance, better pay, more time off.
Soon a conscience in the business developed where I heard individuals telling customers about our credentials, about how we took our responsibilities seriously and why we were better than other agents and how they loved working for the business, were proud to in fact. I heard valuers on the phone defending the fees they quoted and not simply because they felt they should, they wanted to, and it was passionate, some were even offended their seller or landlord had asked.
This led in the three years to our average house price increasing to by a whopping £350,000 in sales and £400pcm in lettings. Our average sales fee increased by 0.4%, so with each transaction our fee had gone up by (not to) £6,700, an increase of 148% on only 3 years earlier. We had highest house price and average fee in the whole of the LSL group and it was no coincidence we made over £1m profit that year for the first time. At the same time our staff satisfaction survey rating, our anonymous assessment of staff wellbeing conducted by LSL, came in at the highest in the group ever as well at 97%. Amazing what you can do banging on about compliance for a couple of years.
So, discounting or increasing your fees are only about getting your vision right for the business, getting cultural buy in, getting your proposition right for the customer and communicating that to them in a way they understand and presents value.
I hear all too many times, estate agents on forums saying, “well that’s not possible in our town, people won’t pay more than 1%, so we have to match that otherwise would never take anything on market”, or “All vendors in our town want is a cheap fee”.
All that tells me is that sellers in those towns don’t feel anyone’s estate agency service is worth paying more than 1% for, because those agents haven’t cracked their vision, shared it with their teams, and given them the tools and belief they need to communicate that successfully to customers.
Remember also it’s not about volume alone, quality and detail are far more important. Dave Brailsford is credited with transforming British cycling from 2002 - 2008 when we won 7 out of 10 track golds at the Beijing Olympics. When asked what he had improved, he answered, as many things as he could find by 1%, knowing their combined influence would be a significant improvement in performance. Even the weight of the paint on the bikes was made lighter. What he called the theory of marginal gains.
Discounting could be called the theory of marginal losses. Definitely for dummies after all.
If you would like to discuss how I could help you increase your fees, please give me a call on 07970 773 847.