Updated: Dec 12, 2019
As if calculating and setting small business prices isn’t hard enough; there’s an even greater challenge waiting for small business owners: the much feared request for a discount.
While clients ask for discounts all around the world, this is particularly endemic in Israeli society. The “shuk” mentality suggests that sellers post a high starting price in order to lower the price to satisfy the customer's need to bargain, as well as to allow the average Israeli to ‘feel good’ about buying the product. This may be fine for the shuk and for certain types of mom-and-pop stores, but for small business owners, trying to carve out a niche in the Israeli marketplace, this societal norm can lead to the death of their small businesses.
There is an interesting psychological side to this discount dilemma – if a client asks for a discount and one is readily given– the buyer infers from this situation that the first price was not just merely an opening offer, but that the business owner didn’t even believe in this first price. In many cases this state of affairs takes on a more negative coloring as the client feels that not only was the seller “taking advantage" of her/him by asking for this high opening price, but the seller will continue to take advantage of the client throughout the life of the client-seller relationship. No matter how low this price is - the entire transaction and future business relationship with the client is tainted with this distrust. So what should you do?
Know your costs and know your limits
Begin as we always do:
Establish your pricing: understand how much time, effort and manpower you will invest to produce a service/product for a client.
Establish how much profit you want to make on each sale.
Understand your market and your competitors’ pricing.
Set your price list and then stick to your guns.
Sometimes a small business owner will feel that if the choice is between giving a discount and losing a sale – the answer is almost obvious – give the discount. But is this always the case?
9 REASONS WHY YOU SHOULDN’T GIVE DISCOUNTS
If you decide to give a discount – consider these points before you agree:
1. A client who is worried only about price and not quality - is not a valuable client for your business in the long-run. Value - and not price - must be at the forefront of any successful business building.
2. If a client can’t afford your full price, chances are they can’t afford you at the discounted price - in the long run.
3. Once you go cheap – you may never be able to raise your prices back up again.
4. A discounted price (even when it is requested) suggests a lower valued/inferior service.
5. Don’t believe stories of giving a discount today to get significantly more work from this new client in the future. The idea being that some kind of future benefit will compensate for the present discount. This ‘more work’ never materializes.
6. You can’t make every sale, some sales are worth walking away from.
7. Take a look at what’s down the road: a discount may seem like a good idea at the beginning of a business relationship, but later on, if the client needs more attention, more complicated services, more hand-holding – you are stuck with a time-intensive client that, in essence, bleeds your resources without paying full price for them. A full-paying client gets these services as a matter a fact, a discounted client bleeds you.
8. Consider what would happen if a long-time client hears you gave a discount to a new client – you could lose this current client. There are no secrets in Israel, especially concerning money – everyone talks in Israel. Are you willing to risk a current client’s loyalty for a new, untested client?
And finally: What’s wrong with discounts and how do they affect your future relationship with your clients?
9. A discounted rate in the long term creates two classes of clients – those who pay full price and those who pay a discounted rate for the same services (see below how to create service package levels to solve/minimize this issue) and may at some point dictate how much time you are willing to spend on any given client when your time and manpower resources are limited. This is a classic recipe for creating an unhappy client.
Talking to your client - Talk in value and not in price
When it’s all about the money and not the service
If all your discussions with a potential surround the issue of discounts and not your services, then you are not managing your sales meeting. When price becomes more important than value – the conversation has become a numbers war. You can either take the conversation back to value and service or leave the sale on the table.
Start with value
When you start with price – there is nowhere to go but down. When you begin by marketing your value and educating to your services, pricing must become secondary to the business discussion.
3 WAYS TO MAKE YOUR PRICING NEW-CLIENT FRIENDLY (without adversely affecting your bottom line):
You can consider any of the following new-client pricing suggestions, as part of the discount request may stem from the potential being unsure if you and your services are suited to them. An initial introductory offer may help to move things in the right direction and give each side a chance to get to know each other and discover the value of the services.
1. Consider introductory offers
These offers help first-time clients get to know you while lowering their anxiety over pricing. Make sure the client understands - in advance and in writing- the time-limit of the lower offer price and your full price. Consider these introductory offer:
Initial free session
First half-hour free
Half price first session
2. Consider service packages
Create levels of service - as opposed to clients paying either full or a discounted price - create service package levels, for instance a gold package and a silver package, prorating the price according to services/hours provided.
3. Consider retainers
Many times the issue of discounts is more an issue of the potential understanding her/his budget and how to keep it within certain boundaries. The offer of a retainer, once initial business setup is completed and both sides have a better understanding of what services and how much time is needed – is a great solution to keeping costs within an understood framework. In addition, add a clause that the retainer arrangement will be reviewed on a regular basis to ensure that it answers everyone’s needs.
Final question to consider: Do discounts bring in clients that stay? The better question is – what do you do to create and then deepen a relationship with the new client once she/he comes in the door because of the discount. How do you turn a new client into a loyal client?
And don’t forget your current clients: in your rush to bring in new clients - it is cheaper to keep a current client than it is to get a new one.
Do you have a good discount story? Share it with us – we’d love to hear from you!
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