Why Discounts are Killing Your Business (and your soul)

I've made many mistakes as a business owner. Some of these I can laugh about. Some nearly bring me to tears. One of the biggest mistakes I've made is offering discounts to customers who can't afford me. Sooner or later these interactions end badly and looking back over the whole of the relationship I can't see where the good experiences outweighed the bad. If you want to work with someone who can't afford you then do it for free. Otherwise charge retail. That sounds harsh, but here's how discounts can kill your business if you let them. 

1. Discounts encourage customers to use price to determine value. Customers who can afford you judge your work by its outcomes. If you must offer a discount to enable a customer to do business with you that customer will judge your work according to the price paid. They will never understand your value and you will never get over their inability to appreciate it.
2. Discounts to the wrong customer invalidate your pricing strategy. Good businesses put thought into why they charge what they charge. When they offer improper discounts these businesses thumb their noses at all that planning. Soon they find themselves doing the type of work they intentionally planned NOT to do.
3. Discounts are unfair to your ideal customers. Your best customers hire you with an expectation that you spend your time and energy working with other people like them. They expect that all this time around like minded customers makes you better at serving their interests. When you work with people who can't afford what you sell you become less valuable to those customers who can.
4. Discounts cripple morale. When you routinely make price concessions for people who can't afford your work you begin to resent not getting paid what you are worth and you question your ability to get your asking price. This resentment and questioning slowly eat away at your confidence and it shows whenever you sit in front of a new prospect.
5. Discounts never go away. Allowing the wrong customers into your business is very disruptive because they never volunteer to end the discount and pay full price. Instead they stick around and take up valuable space. They take more time to service and you will never be able to get that time back, until it ends badly. Eventually you will get fed up accepting less than you're worth or (more likely) they'll think even your discounts are too expensive. When they leave you will look back on the day you first allowed them to do business with you and you'll wish you'd thought twice about walking them through the door with a discount. 

Comments

[Jake]

Its obvious that the business runs from the major fishes. Discounts to them doesn't affect the profit of the firm.. So Giving discounts to the small fishes puts a negative affect on the overall company's revenues..

Regards
Jake
www.phpbbtoplist.com

[Justing]

Hi, I have been helping my wife with her accounting business and I have ran into this issue many times with her. She enjoys working for start-ups and small business because they give her the recognition that she desires, but the problem is that most of them can't afford to pay her what she's worth. We have come to a compromise of sorts.. She charges people based on their profitability. She charges them a low rate until they are profitable and then raises her rate. For me.. I see that still as a discount. Any thoughts?

[Joey]

It's perfectly OK to use variable pricing over the term of a contract provided that both parties understand exactly what is being offered and accepted. If a new startup comes in and really needs what we have to offer I may agree to do the work at cut rates until revenue reaches a certain level (say a 50-80% discount from standard fees). But I also tell the client that when that revenue level is reached they'll be paying 125% of standard fees. This only works if you are delivering real value to the client. It doesn't matter what is agreed to in the beginning, if I'm doing the same job as the guy across the street for a lot more money the client will eventually walk across the street. If you deliver 3, 4 or 5 times the value of anyone else collecting 125%-150% of standard fees will not be a problem.

Where I've gotten into trouble in the past is offering the 50% discount to someone who would never pay more than 50% regardless of the value delivered. If your wife can find people who would love to pay the 125% price but just can't right now working with them in the beginning builds long term loyalty and trust. The trick is separating those people who need what you offer and will gladly pay as soon as they are able from those who want what you offer but will never want to pay for it.

[Justing]

Wow! That is a lot of valuable information. Thank you so much:)

[CEO Accounting Jobs Michigan]

Discounts are major attraction business can offer without investing money like other marketing tactics!

Regards,
CEO
Accounting Jobs Michigan USA

[Radu Prisacaru – UK Internet Marketer & Web Dev]

After searching for this information, I will have to say most people agree with you on this topic. But I have another opinion, see it in my blog.