To discount or not to discount in a downturn

[petercrocker]

I was once strongly advised by a business consultant not to discount the cost of my services as it diminished margins and also detracted from the value of the work being delivered.

But the recent downturn certainly increases the pressure to discount as customers tighten their belts and shop around more.

On one hand discounts can help you win more work, but they’ll also erode profit margins.

Is discounting a smart sales strategy in a downturn?

[wowphotos]

It's one of those things that is very hard to quantify, if you do it you dont know the effect of if you didnt! in my creative industry many companies price themselves the same as their neighbours, or undercut them. Unfortunately this means that the customer is paying the same today as they were 10 or more years ago. Our industry body is trying to get everyone to put their prices up and increase value and perception of value for the professionals. i have found that bumping up my prices brings fewer clients for sure, but bigger spenders! That means that i can really focus on the clients that i do have and do a great job for them as i dont have to rush it.

[The Cafe Ninja]

A bird in the hand...?

I've recently discounted my rate for a client and I don't regret it because it's a really enjoyable job that will benefit my career.

My advice is not only to look at the price but to ask yourself what doing the piece of work will do for your company or your experience. See the big picture. It's not all about the money.

[gregpritchard.virtualcio]

Its a tricky subject, and causes lots of anguish. The linked article below really reasonated with me.

Professionals Don’t Discount Their Services (And Neither Should You)

I've been following advice given to me; that your rate stays where it is, but you offer more for it.

For example, let's say you're a coach (Robert may have lots to say on this example!). Instead of dropping your rate, keep the rate and the length of the sessions, but include between-session email contact for free (if not already offered). If you've written a book; throw it in. If you can combine your services with another provider; create packages that include both services for a slight volume-style discount (but the rate for each can't be reverse engineered directly from the price). Change the overall pricing model, but so you still get paid the amount you should.

Not all will work for you, and some may strongly disagree with the actual examples provided; but your headline rate signals so much more about you than just a dollar figure.

[pfm]

Originally Posted by petercrocker

I was once strongly advised by a business consultant not to discount the cost of my services as it diminished margins and also detracted from the value of the work being delivered.

But the recent downturn certainly increases the pressure to discount as customers tighten their belts and shop around more.

On one hand discounts can help you win more work, but they’ll also erode profit margins.

Is discounting a smart sales strategy in a downturn?

The irony is when things do get tighter you can't afford to discount and when things are busy you don't have to..even though you could if you get my drift! anyway I never discount,because the ones who usually ask aren't worth the hassle

[MissieK]

In my experience, people will find the money for the things they believe are important, whether personal or for business and discounting won't necessarily make a difference. It's much better to value add, even in a downturn.

Melissa

[bchapman]

Discounting is a strategy, that when used properly, works properly. You should discount when you want to create a special offer to generate interest, to tie in with a marketing program and make a splash to get new customers, or to move some excess inventory. These are all good reasons to discount.

IMO, it's not a good idea to discount because you suspect your customers don't have enough money. You either need to increase the perceived value until it becomes compelling enough to trigger a purchase, or you need to introduce a lower cost / lower value product if it's the absolute dollar amount that is the stumbling block. Random discounting just makes your company look like it's in trouble or admitting the product wasn't worth what you originally asked for.

Besides, you should act on real figures, not media doom and gloom. The media (and that includes you, flyingsolo) are only interested in selling ads. To do that they need you to pay attention. They'll string out the 'financial crisis' line for as long as it attracts eyeballs. I'm not saying there aren't people suffering as a result of job loss, reduced income or home foreclosure, I'm saying pay attention to your facts and figures rather than headlines and emotions.

[petercrocker]

Thanks for the responses so far. It seems that kneejerk discounting is a bad option, but discounting as a considered strategy can make good sense.

I like Greg's idea of adding extra value into your service rather than dropping the price. And creating lower cost options as bchapman suggests is a way to service a broader audience without slashing prices... and you're right, there is some excess doom and gloom around at the moment

I agree with the process ninja as well... that it's not all about the money. There can be lots of non-monetary benefits to a project such as flexibility, great people, long timeframes, a learning experience etc... I guess it's just a matter of being conscious as to why you're discounting and what you or your business gain from it.

Also, it seems that many people just routinely ask for a discount just to try it on, even if they don't really expect one!

[divapromotions]

I don't believe in discounting at all. Rather than just losing profits, and showing everyone that you don't believe you are worth what you charge, why don't you look at adding value.

Strategic alliances work best for this. Why not do some cross promotions with some other businesses who target the same market, and are also doing it a bit tough? Offer some incentives from the other business as your added value.

[wowphotos]

Originally Posted by The Process Ninja

A bird in the hand...?

I've recently discounted my rate for a client and I don't regret it because it's a really enjoyable job that will benefit my career.

My advice is not only to look at the price but to ask yourself what doing the piece of work will do for your company or your experience. See the big picture. It's not all about the money.

I also recently did a job for a client who had picked me to do the job even before she needed my service, she is in a related industry, and makes my portfolio and website look awesome, she was the most cooperative client ever, and is so happy with the job i did for her that she knew she really couldn't afford, so i made it affordable for her. She raves about me!