Someone made a comment in one of our meetings last week that caught my attention.
“We never discount MRR, except when a client brings us multiple brands.”
The person who said it was on the sales team. The problem was that we had never created that exception.
We have a sales handbook that says, near the top of the first page, that we do not discount monthly recurring revenue. I’ve discussed the policy repeatedly for years. We revisited it six months ago. Three months ago, I found myself asking why we had discounted MRR on another agreement.
Then last week, someone waived a monthly recurring fee.
At first, I treated these as individual pricing decisions. Eventually, I realized the pattern was more important than any single deal. No matter how many times we communicated the rule, the organization kept returning to the same behavior.
I understand why.
Let’s say a prospect is considering a $5,000 monthly agreement and asks for a discount. Let’s go with 10 percent. The salesperson changes the price to $4,500, the prospect feels like they won something, and the deal moves forward.
In that moment, it looks like a $500 concession.
It isn’t.
It is $500 the first month, another $500 the month after that, and another $500 every month the client remains with you. That is $6,000 per year. Over four years, the company has given away $24,000.
But wait, there’s more …
If you raise prices on existing clients by 5 percent each year, the basis for the increase is on $4,500, not the original $5,000. You’ll lose out on 5 percent of the missing $500 as well. That’s only $25, but add that to the original $500 gap and you’re really losing $525 per month in year two. In year three, the gap gets bigger. Every month, every year, you continue to hemorrhage revenue.
Multiply a scenario like that across dozens or hundreds of clients and all of a sudden you’re talking about real money. The original concession does not remain fixed. Its effect compounds over time and over your portfolio.
Nobody intended to give away $24,000 or more. They intended to make the prospect feel good about signing the agreement.
That is what makes discounted MRR so dangerous. The impact of the decision isn’t obvious at the time the decision gets made.
We are not against concessions. There are legitimate reasons to offer an incentive. We may really want the deal. It could be a big deal or with a strategic partner. A client may bring several brands. A referral partner may create meaningful opportunities across their client base. A prospect may need some relief during the transition if they have to continue to pay their old agency for a month or two.
The value of the concession and the structure of the concession are two different decisions.
Let’s say we’re willing to give someone a $1,000 concession. Don’t discount MRR … give them a one-time credit. That’s a real concession. A thousand dollars is a lot of money. I would be happy to have an extra $1,000 in my pocket right now. Wouldn’t you?
The difference is that a one-time credit eventually gets used up. The client then moves to the correct recurring price without another negotiation.
A discounted monthly rate never corrects itself. You can hope that the client will be understanding later and let you bump your recurring invoice back up. But it never works. The basis for your services is the price they’ve been paying, not the price you originally quoted them. So they’ll never go for it.
And why should they? You probably don't have the guts to even ask them. How do you justify asking someone to pay more money without giving them any additional value? The reality is that you will probably never have that conversation. You'll never have an opportunity to correct once you've discounted MRR.
The propensity of our salespeople to occasionally regress to discounting MRR exposes a larger operating problem inside our company. We had a written policy, but we were still relying on people to remember it, interpret it, and resist the easiest option during a sales conversation.
As companies grow, pricing becomes more complicated. There are old agreements, current rates, multiple service discounts, referral arrangements, group incentives, and occasional legitimate exceptions. No employee will remember every variable and apply it consistently forever.
Repeating the rule more loudly may change behavior for a few weeks. It will not create a reliable operating control. People should not have to reconstruct company policy in the middle of closing a deal.
That is why we are moving toward encoding pricing rules into our tools and systems. The correct price should load automatically. Historical rates should be preserved where appropriate. Unauthorized recurring discounts should be blocked. Legitimate exceptions should go through a defined approval process.
At present, we don't have all the things in our pricing tools that I want. Like most companies, we rely heavily on spreadsheets and tribal knowledge. It's effective, but it leads to these kinds of issues. We now have a Technology & Innovation department that can build this solution, and this is on the roadmap. We are going to solve this problem by building the perfect pricing calculator.
A recurring discount is easy to approve because its long-term cost is difficult to conceive. But small decisions repeated across enough clients become material revenue leakage. What appears to be sales flexibility eventually reduces margin, limits future price increases, and lowers the value of the company.
We still make concessions. We just make them once.
Where has a “small” recurring concession quietly become permanent in your agency? Reply directly to [email protected]. I’d like to hear how you’ve handled it.
~ Erik
About
Erik J. Olson is the Founder and CEO of Proxa, where he builds and operates multiple marketing agencies focused on predictable, system-driven growth. He has scaled agencies across multiple markets by replacing fragmented execution with structured systems that drive consistent revenue. Erik is the author of Million Dollar Journey and writes The Business of Agency newsletter. He is building Proxa into a $100M platform with a planned private equity exit.