What’s Wrong With Discounts?

I’m not a believer in discounts, unless they are part of a marketing campaign. Half-hazard discounts, because someone asks for one, force you to work harder for less pay to justify your normal price. If you’re willing to do that, just make it your normal price. I think more people respect that.

Up Front Discounts: I think everyone that’s experimented with running their own business, contractor gigs, or freelance work, has at one time or another made the mistake of offering up front discounts to help close a deal – only to realize that that wasn’t what the client needed to say yes. I’ve been starting businesses since I was 12, and I was a Sales Trainer for some years. My experience, that I passed on to my students (which admittedly isn’t the gospel), is don’t assume a transactional sale – don’t assume price is your clients’ chief motivator, or even an essential one. It’s a lazy shortcut to being consultative. Consultative sales and marketing is about discovering your prospects’ true motivators and targeting those.

It’s the same thing I learned in education (spent a couple of decades in that field) – learners are motivated by different things – there’s not one type. What some people want is an extrinsic motivator (help their business, for example, and that’s as good as money), and what others want is an intrinsic one (it might be a sense of empowerment as you put more processes under their control, etc.). Where you add value is in satisfying motivators for different prospects, and where your marketing is successful is when you consult with these prospects and know what value they most want added.

Most people that tell me they’re only able to get business by slashing prices aren’t doing intelligent marketing at all. They haven’t got well-defined market differentiators – unique areas where they add value. They aren’t being consultative with their clients to uncover subtle needs. They’re leading with price precisely *because* it’s easier than being consultative. Or so they think. It seems easier, but then they’re also working harder than their competitors, and for less pay. Add value and earn the pay you really need to earn.

Campaign Discounts: A campaign that features a discount on one item or service for getting business in the door, and then charges fair, competitive prices (yes, full price) for other services – that can be part of a smart marketing arsenal. It should never be your only strategy. But as one tool, it can be great. For instance, if you want to give AARP, AAA, student, municipal worker or other corporate or membership discounts, those can work. They work *best* when you actually partner with such organizations or local municipal agencies or corporate partners and you get promotional benefit from it that they help you with. If they’re not willing to promote/market your business for free in exchange for giving their people a discount, stop wasting your time. There are plenty of people who will – focus on those. Don’t run a renegade, all on your shoulders, campaign with nothing in exchange for your discount. Be smart – give nothing away. That’s how you know it’s right – are you consistently getting something tangible in return for the discount. If not, get out of the deal and don’t get back in.

Referral Discounts: For the average caller, walk-in, referral, or whatever, don’t give discounts. Not even for referrals, you say? Isn’t that a justification for a discount? No, it most certainly is not and should not be. I *expect* referrals, just like I expect walk-ins and calls. I learned that as a young man from a colleague in the landscaping business (I also ran a landscaping company at the time, and he was my mentor). If I’m not getting referrals, I’m doing something wrong. They’re part of the normal process of my business – they’re one of the basic assumptions of my business model. I once told this to a couple of neighbors who expected me to work for almost nothing, because I had both of them as customers and they thought I could get one more in that neighborhood, if I did all three lawns for the price of two. I was a kid, but not a stupid kid. I told them what I’m telling you. I expect to get other clients in the same neighborhood – it’s part of my business model. That’s not a reason to provide discounts. There’s always someone who will do it cheaper, they pointed out. Exactly, I said. That’s why slashing prices is ultimately self-defeating. Adding value is the way to make out, not slashing prices. If you can’t figure out how to add value to your transactions – *that* is your first marketing move, not price-slashing.

Marketing for referrals, on the other hand, is different – that’s like campaign discounts. But that’s not the same thing as getting occasional referrals from satisfied clients. If you have a client or contact that can be reasonably expected to funnel a significant number (by significant number, I mean more than 10 people) your way, who has demonstrated this, and the prospects all fall under one demographic, you might consider offering a discount to that demographic when they are referred. You don’t have to offer it to the whole demographic, and you don’t have to offer it to the referring client or contact. That last may seem strange, but the value that client or contact is getting is a lot of promotion too, as someone who can arrange discounts through referrals. Don’t assume you have to deeply discount services for him. After all, you can also refer people to his business. Don’t trade work for referrals straight up, or almost so. If your work is stellar, there will be enough people who refer you anyway that you don’t have to keep giving it away.

Expected Discounts: Often we might hear that people “expect” discounts. Yeah, that’s because people have sold them a bill of goods. We all know someone in our family or group of contacts who will drive 10 miles to save 5-cents/gallon on gas – someone who will buy an expensive advertised/brand-name item because of a 20% discount, when an equivalent item is available regularly at 60% of that price, without the marketing. That’s the world, you might say, so don’t we have to cater to it? Not exactly. You have to correct it, and still run your business effectively – you need clients and so do I. So if you’re going to respond to it (you don’t have to, but if you are) here’s how – you have two choices:

Method 1: Don’t offer discounts like that. Offer “every day low prices”. That’s the world, too. That’s what Walmart does – it’s their slogan. A jar of mayonnaise at Walmart costs the same at regular price as one on discount at your local Homeland Grocer. Why do people go to Walmart? (I don’t – I hate them.) They go, because the prices are low all around. None of us wants to do what we’d have to do to offer Walmart-like prices, though, not if we’re ethical. I certainly won’t. So let’s say Costco prices. They’re a great, ethical company and their prices are still lower than Homeland. We won’t be bottom of the barrel with this technique (no rained-on diapers lying around in our parking lots – you want Walmart – go to Walmart – not every client is my client), but we won’t have to lure people in by constantly red-tagging items and displaying them on an endcap, either.

Method 2: Offer premium prices on everything, and discounts to everyone that asks for one. Some people won’t ask (the risk is they won’t tell you they’re concerned about the price, if you’re not consultative enough to gather their concerns – or else you’ll end up offering a discount to everyone – that’s not the method – that sounds like apologizing because your pricing structure sucks – to do this properly, you’ll have to rely on your consultation skills or take the risk). This principle, though, is the same one that says you ask more for your house, car, or flea market item than what you’re willing to take, and you agree to haggle.

Every day added value, not every day low prices: Personally, I don’t use either of these methods per se, though I’m constantly being told by both peers and other professionals and even clients that my prices are too low. So maybe I do. I have a niche partly based on a price break point, though, and I do OK. But what I like to think I do is charge one very fair price for my work – no discounts – I use a statement of work to define the scope of work – extras are extra. I have systems in place to do what I do, so I’m very efficient. I borrow processes from successful corporate models to maintain that efficiency. My profit margin is reasonable, and my clients get high value. Would I offer a discount on request? No. Would I offer one to an organization on request? No – not unless it was an offer to help me run a campaign that stood a demonstrated/proven  likelihood of bringing in at least 10 more clients ready for a full package. Would I let a customer go away because of price? Yes, I have done so, and I would do it again tomorrow. Even in this economy. Even if I were hungry.

Desperation Discounts: Even if you were hungry? I know, I keep making these radical-sounding statements. It might be hard to believe me, but here’s something I learned from a colleague (again, in the landscaping business). If you work for yourself, and you’re not making at least $25/hour, you’re working for the wrong person – go get a job. That was more than 15 years ago. You’re paying self-employment tax. You’re paying your own health insurance – yes, you’re damned well entitled to health care, so you’d better make sure you can pay for it. You’re paying for your own savings funds (let’s not kid ourselves by calling it “retirement” – the last generation to retire has already retired). You pay for overhead, equipment, supplies, services, and you’d better be spending something on marketing (a business will lose 25-33% of its clients annually to attrition – if you’re not growing, you’re dying, even if you don’t feel it yet – get your marketing in gear while you’re busy – don’t wait until you’re slow, when the pipeline will take potentially too long to build). You need to make a living wage. What, because you’re self-employed, everyone but you is entitled to a living wage? Fark no! Don’t buy into that discriminatory nonsense. If you’re thinking that way, or you’re willing to settle for that, you need to join a freelancers union or form a union of one and defend yourself  A living wage. [If you're a contractor or freelancer, by the way, you might want to contact Free Agent Source. It's sort of like a union for freelancer/contractors, but without the politics.]

So no, if I got hungry enough, I wouldn’t cut my prices continually until people came with me for that reason alone. I would add value, and keep adding value, and I’d raise – now lower my prices. Yes, in a “recession”. Everything I’ve said, every assertion is counter-intuitive to the way I was taught business by watching small, medium, and big corporate businesses whose names I can’t remember, or who aren’t around anymore. But it’s also what I’ve learned from businesses that could survive anything and have. It’s aggressively self-assured business. It’s a plan you might say is founded on arrogance – but, if you’re saying that, I’ll let you in on a secret: That’s why it works. This is rain folks, and your business is an ark. Build it strong. Build it to float. One way of doing that is add value rather than slash prices. Make it lowest-common-denominator-proof. Because the denominator is going to get lower. You want to survive? Plan to thrive.

And yeah, finally, if I had to choose between working for almost nothing and getting a job, I’d follow that colleague’s advice. If I couldn’t make it work adding value and getting a living wage, I’d go work for a better boss, and think and learn and plan again, until I could determine and execute what I needed to do better. I’d get a job.

So, what’s it going to be? You’re your boss. I’ve given you my take on discounts. This was asked as a question by a client or colleague, so I’ve thrown in my volunteer voice on it. You’ve got to do what you know to do. My two cents isn’t worth a tinker’s damn in your business if you can’t believe it when your own voice says it. If you find something else that works well, and you’re getting a living wage out of it, I’d appreciate it if you shared it with me – because, while I’m willing to stick my neck out and talk, and model my business after my talk, I’m also willing to learn. Let me know, and I hope this helps.