The trouble with offering discounts
Does your business win clients because you are offering discounts? Here’s why it helps to stick to your guns and make price a secondary item.
Not too long ago, I agreed to design and develop a client’s website at a discounted rate. It didn’t seem like a risky deal; he already had a template and was eager to get started. This client’s budget restrictions were certainly understandable as he was a small start-up who needed help getting off the ground. Little did I suspect the trouble offering discounts would cause down the road.
Here are four key lessons I learned from the experience:
1. Offering discounts doesn’t change the client’s expectations
Despite already having a template chosen and all his ideas ready to go from the outset, this client still required a lot of my time and specialist expertise. Usually, when you have multiple clients, the one whose work pays the least tends to get wedged in between the other, higher-paying jobs.
"Sometimes, a thing just costs what it costs."
The client wasn’t aware of his place in my internal ‘pecking order’ of course so I was expected to respond immediately to any and all enquiries and emailed concerns, and even found myself loading the site during off-peak hours to work out kinks. Because I let my price slip, I was now in the position of having a full-commitment client who was demanding more time than I had for him.
This wasn’t his fault; it was mine for making him the lowest-paying client. No matter what he was paying, I still owed him a professional outcome.
2. Price is a distraction
A canny client will always price on the table as early as possible in negotiations. Can you guess why that is? Because talking about price is a way of shifting the discussion away from the problem you’re solving for them and onto the subject of what you’re willing to sacrifice to get a job. In this situation, rather than refocusing the negotiation back onto what a good service I was offering, I let the discussion with my client revolve around how high my prices were.
This ended up hurting me for two reasons:
- It moved the conversation away from what I was going to do to produce a website that was a delight to the client.
- It stopped me from setting appropriate expectations for the client, and this led to misunderstandings later.
3. Budgets should align to projects, not the other way around
It’s not at all unusual to quote a price for a prospective client, only to be told that the ceiling on their budget is considerably lower than that. Inexperienced negotiators might be tempted to drop their price then and there, but this approach invariably leads to trouble. Sometimes, a thing just costs what it costs. Unforeseen extra work, (the sort that five out of every five jobs brings with it … and which of course this job had), can quickly eat away at your profit margin until you have nothing to show for your work. When you start a project with an already thin margin, this of course happens even faster.
4. You cannot win a price war
None of this is to say that discounts are never justified. The prospect of a long-term relationship with a client who will presumably pay full price someday may outweigh the immediate interest in being paid a reasonable rate here and now.
Subsisting wholly on cut-rate work, however, is ultimately self-defeating. If the primary reason your clients come to you is because you offer to do a thing for $400, while the best in the field charge $500, then you will be in a spot of bother when another contractor offers to do the job for $300. Or $200. Remember, the worst thing about a race to the bottom is you might win.
In the end, the experience with this client has been a good reminder that, as a rule, my clients come to me because I can deliver the quality of work they require, not because I’m cheaper than my competition. And given there’s a good reason a prospective client has chosen me over an aggressive price-cutter, it allows me to insist on a rate that is fair for both of us.
So, how about you? Does your business use discounts to win new work, or have you figured out a way of offering discounts without tripping over the pitfalls mentioned above? Share your story in the comments; I’d love to hear from you.