5 Tips to Consider Before Giving Out Discounts
A discount is a reduction to the standard price of a particular product or service. Discounts have an old and quite strategic place in market history, and as with every strategy, they can work either for or against your business. Their success depends on several factors, such as the developmental stage of your business (newly founded, growing, long-standing presence, etc.), your number of clients and the way you handle them, and your pricing strategy.
Depending on your business strategy, discounts can either bring great returns or create misconceptions that put your work in danger. Here are some suggestions to help you decide whether discounts would work well for certain projects.
1. Use Discounts to Show Appreciation, Not to Retain Customers
Before you start applying discounts, think well about your reasons for the tactic. Are you considering offering discounts because some clients demand it? Have some clients left you for a cheaper service provider? Are you afraid you might get rejected if you ask for what you’re worth? These sorts of reasons can greatly undervalue your skills, time and effort.
For starters, customers should never feel comfortable enough to demand a discount: if it comes to this, you may have spoiled them, or they may just be far from the ideal customer. Demanding anything, especially a price reduction, means they don’t consider your work important or that they pick providers according to cheapness rather than quality. Avoid such customers or set them straight from the start; otherwise, they may become quite a bit of trouble later.
Depending on the market culture of your area, some clients might feel comfortable (politely) suggesting a discount if they have stuck with your services for a very long time and have been cooperative and punctual with payment.
In some countries and cultures, giving discounts to long-standing customers is common (and expected) practice. Such clients might even expect or suggest it at some point, without being aggressive. If your budget can sustain a discount and a client of yours is actually that valuable, then consider offering one.
In general, discounts should be one of the many ways to express appreciation for your clients’ loyalty and cooperation. Never chase customers (or plead with them to stay) by lowering the value of your own work.
2. Offer Discounts Only to a Few Select Customers
Announcing a general discount plan can be risky. Once done, bouncing back to your normal prices could be difficult if the discount period was limited (for example, a holiday discount) or you change your mind on the strategy because your income is not sufficient. Variable pricing can be tricky, and when prices are lower because of a discount, customers could get the impression that you are able to produce the same quality of work for less money. If a current or potential customer thinks this, then convincing them to pay the full price will be hard.
To avoid this from happening, don’t apply a general discount, especially not to new customers; 10% off for the first project and a standard discount on the second or third project could spoil them from the start.
Apply the tactic only if you have a firm base of customers and can risk losing income; some large companies, for example, use this plan fearlessly. If the market has stagnated, and the normal marketing benefits of having a website no long suffice, then you may need to adopt drastic measures to convince clients of the value of your services.
Web developers might come to this when the market is seriously underperforming, and profits are too low for companies to consider proactive web strategies.
Aside from such cases, consider giving discounts only to a few select customers who comply with mutually set standards. These standards could include:
- payment punctuality
- quality of collaboration (good communication, timely submission of materials, openness to ideas, professionalism, etc.),
- the number of projects you have completed for them
- the number of good clients they have referred to you
3. Offer Discounts Once You Have a Stable Foundation of Clients
As mentioned earlier, implementing a discount strategy is not safe until you have established enough loyal customers to cover your monthly revenue goals. Offering discounts from the start might sound like a good way to attract customers, but it could leave you short in the balance sheet if you’re unable to acquire enough work.
If you’re new to the business, impress customers with your abilities, work ethic and communication skills, rather than pricing strategy.
If all else fails, and a discount is the only option left to boost your new venture, then go for small discounts on long-term projects. This can serve to attract customers by promising them an "appreciation discount" for future collaboration — for example, if they give you a second project or bring in a new customer.
The same strategy could apply to growing businesses that have a few solid customers but are unable to draw in more than one or two new clients per year, even when its quality of work is high. As always, though, be careful about which clients you apply the discount to, and beware of applying it generally.
Having a sustainable number of loyal customers makes it easier to integrate a discount strategy into a broader appreciation plan. Using discounts as one among several methods of expressing appreciation and only for a select group of customers helps you envision the traits of your perfect client and trains new clients to follow this behavior, thus enabling you to gain the most from your collaboration.
Examples of this approach are discounts for your "Top 5 Clients of the Year," or "client awards" for your longest-standing or most active customers.
4. Be Careful How You Announce Discounts
Suppose you’ve decided to offer a discount. Depending on your goal, there are ways to announce it that would create the right effect and prevent misconceptions about your pricing and the value of your work. You could either announce discounts publicly on a website or discuss options with select clients.
Make a public announcement to target a predefined group of clients, such as return customers or those who have used your services for a certain period of time. Such announcements would attract new customers and remind old clients that if they choose you again, they could gain something in addition to the wonderful work you already provide.
However, emphasize the aspect of appreciation and not the reduction in price. You could place a subtle call-to-action button on your "Services" or "Pricing" page. Place it on your home page only if you’re confident in the strategy and aim mainly to acquire new customers. Alternatively, you could post an inviting, informative announcement on your home page. Avoid using big, "excited" buttons to draw attention to the discount unless you’re desperate for clients.
If you want to offer discounts to a few special clients to show you appreciation, there’s no need for a public announcement: just discuss it privately. Such clients might be long-standing, ideal customers with whom you have a good working relationship, or even relatives or close friends.
You could also use it for clients who are excellent communicators and are understanding and punctual, but who are new and have a small budget. You couldn’t apply a "general discount" to such clients, so you would have to address each one separately to satisfy their specific needs and show a personal level of appreciation. For example, you could discuss a small discount for a future project, or propose a small discount to someone with a small family-owned business but who shows promise as a client.
5. Combine Methods to Minimize the Effect on Your Bottom Line
Discounts don’t work for everyone, and not everyone feels comfortable offering their service at a lower rate. You could show your appreciation to clients by offering a discount on its own or in combination with other elements of a strategy.
You could opt to offer extra little services to favorite clients or select groups, as long as they hold some value for the clients. Some ideas are:
- a new banner
- a stylish new call-to-action buttons
- a few refreshed details for an old project of a loyal customer
- a nice advertising brochure to accompany the website of a new client
- an attractive newsletter
- a new image gallery
- registration of their domain name for a year
- free maintenance for a period of time (if the website is mostly static)
- extra holiday design features
With a little imagination, such perks can go a long way to improving customer satisfaction. If you are set on offering a discount, you could reduce the percentage and add one of the above features. For example, instead of proposing 10% off a project, offer 5% off plus a new banner.
Last but not least, remember not to offer more than your business can sustain for the sake of attracting or spoiling customers. Be measured in your approach, and take action only after thoroughly analyzing market conditions. Consider your lineup of clients and your balance sheet first before pursuing a new pricing strategy. Play it safe in order to safeguard your reputation, work ethic and income.
Have you ever tried using discounts in your business? What were the effects on sales and customer loyalty? For what reasons would you avoid discounts with web work?
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About the Author
This was published on Feb 16, 2011