Why discounting is bad for your business

Discounting is a complicated issue.  Struggling with pricing is a rite of passage for most entrepreneurs. When you reach a certain stage in business and you become more confident with the value of your services you tend to become more comfortable with your figures.  As you will know, the life of an entrepreneur isn’t all plain sailing.  As we deal with one issue or block, usually another follows close behind.  This is completely normal.  It’s part of the growing pains of business.  So whilst maybe you have nailed your prices, you might now be grappling with discounts. The UK government’s recent announcement that we are now officially in a recession will drive many business owners into a panic.  They will be worried and anxious and the pressure or temptation to discount will be even higher. 

To discount or not?

The most common struggle for business owners when it comes to discounting is;

 a) whether they should discount at and

b) if they do decide to discount, how much?

Discounting is all fun and games until it makes a big hole in your profits.

Early Bird Discounts

I’m not saying discounts are evil. Discounting can work well IF and that’s a big if,  it is planned as part of your business model. For example, service based businesses might offer an “early bird” discount for a course or programme (either for a signup by a certain date or for the first so many people who sign up). This creates urgency and can spur people into action. For some, a discount can be enough of a reason to nudge them over the line rather than procrastinate and eventually forget about it and move on. Discounts can also help you gain a larger volume of work as part of a pre planned approach, especially if your target market is corporates.

Discounts that pay for themselves

Volume discounts can also work for product businesses. The cost of producing & selling each unit can reduce. If you’re packaging up 20 individual things and sending them to different locations the costs will be higher than sending 20 of them to one place, even if the thing itself costs the same. It can also increase average spend for each customer. In my retail days, offers like 3 for 2 or spend over £50 for free postage or a 10% discount often paid for themselves

Where people go wrong with discounting

Discounting only works in your favour when it’s part of a strategy.  The people who lose money are the ones discounting reactively rather than planning for it. When you haven’t costed a discount beforehand and you don’t measure the impact of it on your sales or profits, you are giving money away.

Not being clear about why there is a discount

Ad hoc discounts confuse customers and put them off.  Recently I was reviewing a sales page. There were so many different prices it was nearly impossible to work out what was discounted to what and why. The person was offering a course at a “beta discount” because it was the first time they had run this new programme.  Other prices were planned for the future, but from a customer’s point of view, the impression given was that of desperation. There was no explanation for the discount or indication that I could get in now for this price but that if I missed the opportunity the price would more than double next time around. 

Lack of confidence

Some businesses offer a discount simply because it feels easier than learning how to communicate their value. They make up ridiculous prices that they would never dare to charge and then show a massive discount.  If they are offering a huge discount they either don’t believe that it was worth the original price or they don’t know how to get other people to believe it.

I see this a lot with courses advertised on Facebook ads. “Get my blueprint for X with 90% off!”. I once saw someone struggle to sell a course for £35 which was teaching people how to increase their profits. You couldn’t make this stuff up. My immediate thought was “if you’re offering all that for that price I’m not going to learn much from you about improving my profits” That might sound harsh, but potential customers don’t owe you the benefit of the doubt.  They will buy from you when they feel like what they get back is higher than the price they paid.

Pressure from potential customers

People asking for a discount is not unusual and some business owners feel obliged to discount if asked. This happens a lot with clients in service businesses. Virtual Assistants, Copywriters, Social Media Managers, Photographers and Web Designers all get asked for preferential rates. Whether you sell to other business owners or to corporates, the day will come when someone will try and squeeze you on price. Be prepared for that day and know exactly what you are (and more importantly aren’t) prepared to do. I advise my clients to “do a Zammo” and “Just Say No” (Grange Hill, 1986, how have you not heard of it?)

Don’t want to say “no” outright? That’s fine, it’s your business, BUT build your pricing in to accommodate what you are prepared to do so that people can buy from you on that basis.

A Virtual Assistant I know was recently asked about discounting based on volume of work. That old chestnut. Think of it this way, if someone said “If I pay you less, I will continue to pay you less for longer and you will not have as much time to promote your work” would you be up for that? Not so appealing now?

Value yourself

When you need cash it’s normal to feel like some money is better than no money. Potential clients who start haggling with you on price have red flags written all over them. If you say yes to the work they inevitably turn out to be bargain hunters. The fact they don’t believe your work is worth what you want to charge means that they won’t value your work whatever the price or quality. If they want to control your price they will want to call all the shots. They tend to show you little professional respect and generally cause you untold angst. Leave them for other people to say yes to.     

Get your discount mindset right

More often than not discounting is a mindset issue. Do you do the  ‘eager puppy’ discount? Hoping that knocking your prices down will get more people to say yes? This is so common when people launch a new product or service and sell it for the first time.

Have you ever experienced that moment in a sales conversation where the offer of a discount just comes out unbidden? I once had a conversation with a copywriter who’d been commissioned to write blogs. On the first call to discuss it, her client asked if she also did web copy. In a rush of excitement at the prospect of extra work, she said yes she did and that she could offer a discount. The client hadn’t asked, wasn’t expecting a discount and almost certainly didn’t need it to be persuaded.

Takeaway advice… If you’re going to discount, do it right. Decide ahead of time, understand the impact on your business and whatever you do don’t be pushed into it. 

If you need one to one support with your pricing or discount strategy why not book a Power Hour.  You’ll be amazed at how much we can achieve in just sixty minutes.  I can help you get clarity on your pricing structure and help you decide how to respond if and when you are asked for a discount. 

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