Volume-Based Discount Alternatives in Professional Services

There are situations in large-scale enterprise professional services delivery where customers want to introduce incentives to grow the vendor/customer relationship with more beneficial customer pricing. We can categorize these instances as an opportunity to structure volume-based discounts with that specific account.

Volume-based discounts could be implemented in any number of ways depending on the type of service provided. Let’s assume a professional services delivery. Below are options for considering select volume-based discount methodologies.

Job Shadowing: It implies adding team members to a project at no cost, based on a predetermined ratio. For example, the services provider can add one person at no cost for every 10 billable team members. The benefit for the customer is that they receive additional delivery capacity, and the benefit for the service provider is that the investment is only the COGS of the role. It is important to define what type of role is the one that will be added to the project at no cost.

Tiered Discounts: Here, the service provider offers incremental discounts based on the consumption tier the customer is at. For example, the first tier of monthly revenue from $0-$50,000 may have a 0% discount; the second tier from $50,001-$100,000 has a 2% discount; the following tier of $100,001-$150,000 has a 5% discount, and so on, discounts applying only to that specific tranche. This helps align the relationship scale between the customer and the service provider, showing a higher headline discount number for higher tiers but a lower average overall discount at the end of the day.

Straight Discount: This simplistic case applies a straight discount to the entire customer billing based on the size of the overall relationship. This mechanism will create discount intervals, potentially motivating a customer to remain on a discount interval’s lower edge to capture the entire benefit without consuming at the top of that range.