Your prospect loves your product. They're drooling over the features and already planning the integration into their system. You’re both ready to sign on and get cranking.
Then, you mention your setup fee or deposit. It's nothing out of the ordinary, but it's a punch in the gut to your prospect. They're offended. They don't want to pay. They're ready to walk away.
You recognize this scenario if your product or service has a deposit or setup fee. Entire sales hinge on whether you can sell the fee to the customer.
All the prospect sees is another expense, and it’s impossible to sell an expense.
But you can change the terms of the conversation. Make the fee valuable to the prospect, and they’ll want to buy it. Here’s how.
Why Do You Have an Upfront Fee
It’s counterintuitive, but an upfront fee or deposit is necessary for your customers' benefit—it’s to make them more successful.
Your company has these fees for a reason. They allow you to perform your service better, help your customers, and deliver a better product. Your job in sales is simple—to help the prospect see that value.
Position Your Deposit as Part of an Exclusive, Top-Tier Service
Value: Be part of an exclusive service that only works with the best and most committed customers.
When you communicate that you have an exclusive service that doesn’t accept everyone, you’re signaling to your prospect that those customers you accept will get a premium product and experience worth the deposit and more.
Consider Mailbox, the wildly successful email app that Dropbox eventually acquired for $100 million. Eight hundred thousand people downloaded the app and joined the waitlist for a product they couldn't use. It is precisely because they can't use it and have to wait that they think it must be an amazing product that they must have.
This is hardwired into your brain. Researchers scanned people's brains in a Caltech study while they sampled different-priced wines. The subjects always reported that the more expensive wines were more flavorful, and the scans backed this up, showing increased neural activity in the brain's pleasure center.
The catch? Actually, the wines were all the same, only the price was different. We get more pleasure out of a premium product. As founders, we often undercharge for our product because we lack confidence—but being cheap is not the way to go. Instead, aim to create more value.
Objection: Can't you make an exception? We want to try it first to see if it’s effective before committing.
Closing the deal: No big deal if you’re not ready to commit.
At this point, it'll be tempting to negotiate, offering to lower the fee just to close the deal. Don't. Not only will this lower the status of your product in their eyes, but it will also harm your team’s ability to deliver your top-tier, premium service.
By showing that you’re okay with not getting the prospect’s business and backing up your talk by not negotiating, a funny thing happens—customers will want you even more. That’s because everyone wants what they can’t have.
Embrace your deposit as part of your branding and positioning as a luxury brand, and you'll turn it into something that shows your customer your value and ultimately makes you even more desirable.
Re-Frame Your Fee as an Investment in Success
Value: Invest in your success now, and you’ll be paid back 10x.
Framing the fee as an investment helps your prospect understand what you will do with the money. You’re not nickel-and-diming them. You’re not making any money at all off the setup fee. The entire amount goes to ramping up premium support, engineering consulting, and more.
New customer relationships involve investments by both sides, not just on their end—prospects often forget that. Make the prospect aware of how much you’re committing to make the relationship successful. They’ll see that you’re making investments in success and that it’s only fair for them to invest.
Objection: Your competition doesn't have this fee.
Closing the deal: Our competitors have the fee—they're just not upfront about it.
All these services must be paid for; it's just yours, explicit and upfront.
Offering bad news upfront might seem like a bad move. But here's the thing — people trust negativity. Studies have shown that even infants show a negative bias. We implicitly give more credibility to bad news, increasing our trust in the giver.
If the prospect goes with a competitor that doesn’t charge a fee, then in two months, they will face one of two negative consequences—one bad, the other worse.
1. Months Wasted Ramping up Slowly
Instead of charging the fee upfront, your competitor builds it into their monthly recurring price. That means that rather than ramping up quickly and all at once, they ramp up slowly over several months.
Your prospect loses the full value of his investment while your customers speed past, having ramped up immediately from day one.
2. No Resources Spells Total Failure
No fee means no resources, no staff in place, and no dedicated engineers or account managers. None of the support and infrastructure you offer them with this one-time payment is available without the setup fee.
When they realize that, they'll spend twice as much on hiring their own staff and separate consultants. Six months down the line, they will have invested more time, money, and resources and will be months behind where you promised they would be.
Using your service, with your setup fee, they're investing at a fraction of the cost upfront, and in six weeks, they are up and running and crushing it.
Change a Fee From an Expense into Added Value
Don't hide your fee. Don't apologize for it. Own it.
Whenever a customer balks at an upfront fee, don't worry. They can only initially see it as an expense to be negotiated down or out. But you can use your knowledge of what these fees are for to reframe them to showcase their true value.
Remember these three points:
- Position yourself as something exclusive and in demand in the market, something apart from the market;
- Show that you are investing in the relationship and
- Be honest about something that needs to happen up front and expose the hidden costs of your competitors.
By doing this, you can close the deal, protect your product’s value, and define your own space in the market.
