Strategic Discounting: Respecting Yourself by Maintaining Your Value

Your business plan identifies how much your time or your product is worth. You have clearly planned your margins and hopefully know how much you need to sell to reach your breakeven point and profit goals. Imagine the danger of slashing prices without considering the consequences.

As a brand new business, you might find yourself asking “Is low paying work better than no work?” And you might answer your own question: “Sure, it’s not what I want to earn, but it could keep our start-up going.”

A dangerous side effect of discounting is that you risk lowering the market’s perception of your value.  For example, there is an armchair I really wanted for my living room.  I found the regular retail price of $199 fair, but to keep within my budget, I decided to delay my purchase. The chair went on sale – it was on the market for five days for $129. Yes, I bought the chair at that price, but in my mind, it will now only ever be valued at $129.  I would never consider buying a second one for $199. The same could happen for your product or service.

Here are my strategies:

Trade offs: Demonstrate to your customers that you can work on making your service affordable within their constraints, but not to the detriment of you or your product value. Practice a bit of give and take with your customers. I once experienced a success where I quoted a job for a client that was higher than they could afford. The job had substantial overhead expenses that I had to include in my quote. We discussed the price and decided which of those low margin overhead expenses (mostly equipment rentals) they could actually do themselves. I lowered the price, and managed to increase my profitability at the same time.

Don’t sell on price: Buyers have needs and wants that extend far beyond getting a low price. Hugo Boss and Mercedes-Benz wouldn’t exist if price was all that mattered.  These brands speak to emotions, to satisfying a particular client need. While you are selling, try to leave the pricing discussion out of the first meeting. Talk about the challenges you can help the client overcome. Ask powerful questions that assess their needs, and come back with a proposal that fulfills those needs.

Transparency in pricing – break it down: You should be confident in explaining why your prices are what they are. Early in my time as an entrepreneur, I would provide my clients with one big price tag for the whole job. It created the impression that I was asking for some arbitrary and large amount of money. I now break it down:

  • how much do I charge for the planning?
  • how much for research?
  • how much for reporting?

With smaller segments of the project identified, it was easier for clients to see that there was value in each section. It also came in handy when discussing trade offs.

Make them earn it: If you are going to offer a discount, give it to your best customers. Great clients who use your product or service many times in the year already understand your value. They can represent a larger part of your revenue averaged out over a longer period of time. The stability that this can offer to your cash flow, and benefit that you don’t have the costs of acquiring them as a new customer, is worth something. Sharing your appreciation for a large volume order or repeat work can be great for your relationship. Sharing how or why you can justify this discount is still important for the customer to understand.

Pricing takes practice. The confidence to ask to be paid what you are worth takes practice. Work on developing the strategies and phrases you think will work for your specific business to maintain your value.

Did you know? November 15th – November 17th is Entrepreneurship Week in Halton. This engaging series of seminars and events focuses on all things entrepreneurial.  The week of events provides learning experiences and networking opportunities that will inspire and educate you, whatever stage your business is at. Check out the schedule and register!

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