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Oct 2009
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## Client Asking for a Big Discount

We offer a kickback of 40% for referrals and we offer a 30% discount for bulk clients. We only pay the 40% referral fee for initial sales, not for renewals. I think that's standard.

We have a very good client who has, in one year, sent 20 accounts (he's a web designer so he sends his clients) and we sent him 40% back for each.

He also bought 6 accounts for himself. Now that his first account is renewing, he says he's confused about the 30% discount and how the referrals work.

He says our referral agreement doesn't say it's only for the first year, so he had thought that the ongoing referral fees would pay for his accounts. So he wants to know if he can pay in full for his accounts and instead, get the 40% referral fee for new sales and renewals. Or even get just a 30% referral fee for new sales and renewals, along with his full-price accounts.

This guy sent 20 accounts in one year, but he said some of those were existing clients and he doesn't expect 20 every year. So let's say 10 new clients in a year. Doing the math now, if an account with us costs 1 dollar (then it's very easy to do the math), then our idea was to give him referral fees of 20 times 40% which is 8. The discount on his sites is 6 times 30% which is 1.8 which means he pays 4.2. Total for the first year is he profits 3.2.

Second year he sends only 10 new clients and so his referral fees are 4 and he thus pays .2 total.

His suggestion, however, is that he pays his 6 in full but gets 20 times 30% for the renewals plus another 10 times 30% for the new referrals. Thus in the second year he will pay 6 and get back 9 and thus profit 3. Third year he will get 40 times 30% which is 12 and pay 6 and thus profit 6. Next year he profits 9.

Am I calculating this correctly? The figure of 10 new accounts is just a guess. He might send 12 or 15. I would think not more than that.

He is correct that the agreement wasn't 100% clear (yes I already fixed that) and he is a very good client so I want to keep him happy, yet I also want to not give away money unnecessarily.

We are inclined to offer him his 6 accounts for FREE for life (thus we are being flexible and "giving in" on this point) but remain with the one-time referral payment of 40% and thus he not only gets his accounts for free, he even profits 4 every year, and it won't grow with time.

How does that sound?

Any other ideas or thoughts about how to handle this?

2. The Coffee monster
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If I was you, I would apologies to him, however we can offer you such and such... Kind but plesent way of explaining and he should be understanding, he should know being a webdesigner you can't give away alot as it's a business.

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Are you running a business or a charity? If a business, then no further discounts are needed.

4. Web Hosting Master
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Jun 2006
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949
I can't make heads or tails out of any of your figures. Far too much math after a couple margaritas and long day at the office, but this is very simple for me...he's sending you lots of business that you otherwise wouldn't have. Is it not better to make some money than none at all?

Sorry to disagree with everyone else here, but I'd absolutely give him the discount. If you make \$5 per account as opposed to \$0 per account (since you wouldn't have them in the first place), I'd say that's a win for everybody.

5. Web Hosting Guru
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Nov 2010
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317
I agree with wswd, making some money is better than making none. You know if you say no to him, he's gonna leave you and/or stop bringing more customers to you. Some customers just want to feel being appreciated, through different ways. If you can work your maths out (and will still receive profits), I would suggest you to give him discounts. Remember, you are doing something for loyal customers, not someone you don't know. But don't let him climb on your head.

6. Retired Moderator
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Originally Posted by wswd
If you make \$5 per account as opposed to \$0 per account (since you wouldn't have them in the first place), I'd say that's a win for everybody.
What if he makes a \$5 loss per account? Make it up on volume?

The numbers matter above all. But like you I don't have the energy to work through those figures and in any case we don't have all the other information required to understand the financial position, notably all the costs of running the business.

@OP: You need to work this out for yourself. Offer him whatever deal you calculate will work for you both.

7. Web Hosting Master
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Jun 2006
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949
Originally Posted by foobic
What if he makes a \$5 loss per account? Make it up on volume?
How would he have a loss? This is presumably shared hosting we're talking about. He isn't losing anything but disk space and bandwidth, if anything at all.

If he is operating at a loss (loss leader, perhaps), then it was a stupid business practice in the first place; allowing somebody else to make money off of you, if you are making none.

8. Actively learning French
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Your client's suggestion sounds a bit over the top for me. Now I really cannot dig into your financial situation because I do not know, however, I would like to say that there is good business and bad business. If you can offer your client what he wants without you reaching into your business bank account to support his "desired" discounts, well by all means jump at it. If that is not the case, then forget it and run from it as you would the plague. Business might be good now, but what happens if you loose a couple of clients you "depend" on...this deal can break you in half when you least expect it

9. Junior Guru Wannabe
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Apr 2013
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Stop operating at such low margins. You're not OVH.

10. Quality Web Hosting Matters
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Servers
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If your prices are low and you are so generous you need to have a tons of customers to make it happen .

11. Web Hosting Master
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He wasn't confused. He's trying to walk all over you and you're considering it. Go with what you have in the TOS and nothing more. You're a business, not the salvation army. If you want to give away hosting, make a free host.

Ignore those saying it's better to make some money over none. Those are the people that are missing out on possible cash everyday. It's bad business. Yes take care of clients, but don't give them everything they ask for. If he leaves, let him. There will be others to take his place eventually.

12. Web Hosting Guru
Join Date
Nov 2010
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317
People with big businesses usually afford to say NO easily because one customer is just a small figure for them, whereas smaller companies are more customer-oriented and would usually do things (or more flexible) to impress clients hoping clients to stay with them. When these smaller companies get big, they will think like you. So it's really depends on the OP himself whether or not to give discount or kick that client out of his income stream. Just my opinion.

Join Date
Nov 2011
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EU
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105
You are not that big and that discount is BIG. You would be better to stop offering referral program, if you are going to allow him that.

14. Web Hosting Master
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Sep 2008
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Seattle, WA
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If your profit margins allow for you to pay him 30% recurring commission (maybe negotiate to 15-20%) then do it. Sounds like you offer a 30% off for bulk orders, so giving him that 30% on his accounts + 15-20% commission on the other orders would be a good setup.

You could also do the 15-20% as an account credit, if he has enough other accounts to cover his whole bill, he gets it free.

15. Web Marketing Solutions
Join Date
Jun 2010
Location
Modesto California
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Sounds a bit ridiculous if you ask me, 40% recurring referral program? You might as well make him a minority partner in your company if he is going to be getting 40% of everything he sends your way for life.

In your scenario I would A.) offer him to continue using our current referral program or B.) I would propose he set-up a reseller account.

End of the day, anything you offer to your clients you need to make sure is sustainable.

16. Newbie
Join Date
Jan 2014
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7
Originally Posted by gordonrp
Are you running a business or a charity? If a business, then no further discounts are needed.
wise words lol

17. Junior Guru Wannabe
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Apr 2013
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Originally Posted by gordonrp
Are you running a business or a charity? If a business, then no further discounts are needed.
I want this on a t-shirt.

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Chesapeake, VA
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In my personal opinion - you should work something out with him that satisfies him but protects your ongoing margins to a reasonable degree. The main reason why I say this is that you did mention that your agreement was really not clear on this so there was room for potential doubt.

That being the case and the fact that he's a good customer and source of business - I would definitely work something out with him. I don't think you have to give away the farm here but demonstrate that you appreciate the business and that you'll work with him since there was some (potentially) legitimate confusion.

The nice thing here is that by demonstrating some flexibility and willingness to work with your client, you'll actually likely take a situation that might have been a negative and actually turn it into a positive in terms of your relationship with him.

There are certainly customers out there who want to abuse situations and take advantage of their vendors but it doesn't seem like this customer is one of them from the way you describe him.

Join Date
Oct 2009
Posts
111
cdgcommerce, you got it precisely correct.

Thank you to everyone who responded--I got some good ideas and it's working out well.

20. Web Hosting Evangelist
Join Date
Feb 2003
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466
Your hardest task is to accurately calculate your cost per account. Include any credit card fees. If he pays you himself for all accounts or writes you a check, then you are ahead a bit there.

Remember you can be more flexible if he handles customer support for his clients as well. A smaller profit is more agreeable if you make no time investment.

Do you buy any graphics work or templates from him? If so, he's a vendor to your business and should get special consideration.

We offer free hosting to all of our vendors. It helps to cement a bond that just works great for both our vendors and us.

Do you get 40% off your purchases from him like he is asking you for? --- just a thought here.

Best wishes from Chicago, I hope you find a solution that works for you.

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