“We talked about everything they needed. They chose several packages and a lot of support services with promises of needing more as they grew. Then they expected a sizable discount.”
“I felt it I didn’t discount, I couldn’t land the client.”
“I told her I didn’t want to drop my prices but she said everyone was doing it.”
“They said they were starting out and really needed my help. They wouldn’t be able to accomplish their goals if they didn’t get a discount.”
I’m guessing one, if not more, of these sound familiar. Even if you were not a part of one of these conversations you probably know of someone who was.
Wait! Before you discount your prices know why you are doing it.
- Because someone asked isn’t enough reason. Laziness at the prospect of what seems to be an easy one-time sale can be finessed to build into repeat long-term sales – giving your business sustained income to build and grow.
- Because you’re not confident in what you’re selling isn’t enough reason. Lack of confidence in your product/service or your ability to sell at full price can be learned, improved, and fixed.
- Because you think price is the only thing between choosing to buy from your business and another business isn’t enough reason. Not understanding the value of the product/service or not knowing how to articulate the differences between value and benefits can be honed and learned.
Giving a discount because you are an emerging business is foolishness. These businesses will not be around for years and years. They undermine themselves every step of the way and later scratch their heads to why they struggle. Too frequently a discount is given without much thought about why it’s being given.
During the Christmas holidays I shopped a well known box store for a Star Wars Yoda plush figure that was on a family member’s wish list. The plush figure retailed for $49.99 and was on sale for $39.99 – saving $10. When I got to the checkout counter the salesperson commented that she thought the price for Yoda was excessive. I didn’t say anything because it was on sale, in my shopping budget, and the only thing this person requested for their Christmas gift. Then the salesperson said she would give me a 25% discount because paying that much was ridiculous for such an item – lowering the price to $29.99. Now, what happened?
The salesperson didn’t see the value in the product the store she worked for was selling. The salesperson cost the store profit when a customer was satisfied with the sale price and an additional reduction wasn’t necessary to gain my sale. The salesperson based her decision on her value system and applied a price that held meaning to her if she were the customer. [In misjudgments like this, it is reason enough for only supervisors to override the system to add additional discounts to an already marked down item but I’m letting my retail store manager experience speak. It also speaks to why clerks need training to be better frontend salespeople.]
Buyers are wise. While some may get excited about a sale price and expect discounts the vast majority recognize that sales are statements of what you should actually be paying. Here’s an example that is seen online frequently: sales pages with a regular price and that price is crossed out replaced with a lower special price. The lower price could be hundreds of dollars lower such as regular price $397 but reduced to a special of $197. Or another common one is: $97 reduced to $27.
I caution you to avoid selling based on price. It is a slippery slope and one hard to recover from once you get the customer in the door and later want to increase the prices to be more inline with fair market rates. Always, always, always sell on value. Value is where you differentiate your products and services from other businesses.
There are three basic reasons that a business should discount:
- Prepay discounts – Giving a discount when the customer pays all the cash upfront is a motivating reason to give a price break. You’ll see this in terms such as 5% 10 Net 30. This translates to take a 5% discount if the invoice is paid in 10 days otherwise the full invoice amount is due in 30 days. The incentive is to pay early and pay less.
- Bundled deals – An increased transaction size can be a valid reason to discount.
- Seasonal sales – Discounts to phase out inventory is business smart. This is inventory that needs to be taken off the books and gaining some compensation for it is better than writing it off totally.
The next time the conversation shifts and a discount is requested pause to consider why the person asking for the discount has earned the reduction before agreeing. A discount may not be in the best interest of your business.