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Why not charge a higher rate to startup's to price in the risk of non-payment and reduce the rate to corporations who are more reliable?
by noname123 12y ago
Why not charge a higher rate to startup's to price in the risk of non-payment and reduce the rate to corporations who are more reliable?
- rahimnathwani 12y agoAnswer: Adverse selection. If you charge 2x your normal rate for some class of clients (e.g. startups) with no other changes in how you source or engage with clients, then you may end up with only those startup clients who were not going to pay you anyway. The guys who would have paid you will baulk at the 2x fee. Those who accept don't care that the fee is 2x, as they weren't going to pay anyway. There's no substitute to doing due diligence and limiting the risk (e.g. through contracts and short payment cycles, as others have said).