5 Tips to Consider Before Giving Out Discounts

Feb 16 2011 by Maria Malidaki | 14 Comments

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:

  • loyalty
  • 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

Maria Malidaki loves creating and managing websites, focusing on clean and simple design primarily using semantic HTML/CSS. Planning to also work as a vet and researcher, she specializes in building the web presence of academic and scientific events. Keep in touch with her on Twitter @mthunderkit and at her professional website at thunderkit.net.

14 Comments

Will

February 16th, 2011

Food for thought, good article.

Cheryl Ellemberg

February 16th, 2011

Thanks for sharing! I just had a conversation with my colleagues yesterday about this. Using incentives and discounts properly is key to properly branding your business.

kos

February 16th, 2011

There are two type of discounts :

#1 the real one, where you actually cut from the product’s price
#2 the hidden one, where you cut from the product’s price but still come out in profit

You only touch the first option. Many web companies use the second one instead, because there is no point in reducing the price of a product that sells below the earning point, because if you do that you’re out of business because there are so many others that claim up and loud their services and a very small price would not lead to trust but to a “I have no clients so come to us” idea of the company…

When I started my company I tried to offer accessible prices to all, but not too accessible(read: almost for free) because creating a website implies a lot of brain activity and time so you just cannot do it for free…

but maybe I’m wrong, so I’m waiting for other opinions as well.

Have a great day!

Kos

Anthony

February 16th, 2011

Great article Maria! I’ve been through that experience about paragraph one. Your article means alot and well said.

Maria Malidaki

February 16th, 2011

Thanks for your comments everyone!

@Kos, certainly selling your services for a very small price will get you out of your financial balance, but discounts are not about selling low, they’re about cutting a relatively small part of the price, for either specific clients or specific groups of clients.

As far as earning goes, it’s not only the money you get from a project. If you decide to use discounts and you make a good plan for it, that doesn’t humiliate the true value of your work, then you can lose 10% of a project’s actual price and gain a new customer for the 100% of a project, or a couple of new projects from a solid customer for the 90%. Of course, you can achieve that without discounts as well, but this strategy has been one of the many used to attract and keep customers.

Indeed, as referred in the article, if you cut too much from your normal prices, it makes you seem desperate, and this is the last effect you want to get from discounts (unless you’re in a truly desperate situation, and at that point, there are many strategies and things to consider and it’s a whole different discussion).

I couldn’t distinguish between the 2 sorts of discounts you referred to, so it would be great if you could add an example for #2 :) Thanks for your input.

kos

February 17th, 2011

[I just woke up so I may write incoherently]

Maria, #2 is like this:

suppose you have a product, let’s say creating a website, so it will cost $200; now you cannot just go with that price because there would be no profit, so you must add some $$ to it to gain a profit so let’s say you add $25, now you make websites starting with $225.

Then, business is good, but you want to make it better, so you offer discounts, and here’s the trick, the discount is not greater than those $25, so discount or not you still have profit.

This is the exactly same thing you can see in most of the superstores across the world. They offer products at a price they say it’s cheap but then come promotions when you got the same stuff for less money, yet they still come out in profit…

I know how this works, because I’m in this business for quite some time now, and I understand the nature of discounts or even getting a client for free just to gain other 10 for even greater rates….(web hosts do this all the time)

It’s important to know how to keep and get new clients, and discounts, done at the right time, are just a clever way of making your business grow.

[time for coffee]

Brian

February 17th, 2011

if you click on the image of this article on the main sixrevisions page you get a 404 error, just a heads up.

Maria Malidaki

February 17th, 2011

@Kos, your example is well understood. Thank you for referring to this kind of tactics as well. Here’s my thoughts:

As a freelancer, and working at home, your actual costs aside effort and time, are minimum. Hence a good part (if not most) of what you get paid for your web services is your absolute income (sans taxes – depending on national regulations for each country). It won’t cost you, say, 200$ to make a website. To me at least, it costs the electricity I need to get my laptop running, and some extra small expenses for some stock images and such. Other than that, it’s time, effort and creativity. So basically, the largest part of your prices is dictated by the value you give to your time and effort. On this value, you can scale things to small reductions and well as increases without risking your income, as long as you do it with a plan and a certain and well-thought goal.

So as a freelancer, you won’t fall short on your budget unless you don’t manage it well and unless you do gracious reductions that will render your income incapable of making ends meet. Companies should have a more serious issue with applying discounts since they usually have to pay a business rent, employees and other standard costs, that don’t apply for a freelancer who works at home. But even on this case, it’s all about planning before acting on discounts (and on anything else that links to finances).
The overall outcome of discounts is to achieve greater profit and not reduce your income after all, as you also pointed out in your closure. :)

Selling services more highly than their actual “worth + profit” equation is indeed a trick to try, but I personally dislike this kind of tactics because someone might end up with prices too high for their quality of work. It truly is a common and established practice in business, but it feels a little unethical, for me personally. Also, not all clients are so easily fooled as they are with actual goods (as in stores). Services are a little more delicate in my opinion. If your clients figure you’re playing games with pricing, they might decide to abandon you once and for good, and even worse, advertise you negatively.

kos

February 18th, 2011

I totally agree with you, Maria, but think about this for a sec: we live in a world where you can’t do some basic things that you might want, like moving somewhere else(different country) and live there? why? because we lave laws; laws made by powerful men(institutions) to make us follow a path(their path); ok, fine, but our problem is that we don’t actually see what’s behind that, or, even if we can see we can’t actually do nothing about it, why? again, because we have laws and we didn’t make them.. :(
Ex: watch CNN :(

[let's say a product on the market costs $100, and in an expensive store it cost 10 times that much]
As about the superstores sells, think about this: they buy their products from somewhere at a price(let’s say $50), right? can you as as an individual buy the same product at $50? nope! then the superstore puts a price on the product, let’s say $90 and sell it to you. In this case their profit is huge and you say it’s ok because if you go to the market you get the same product for a $100 which is not that fair; then comes a time when they offer the same product for say $60, which is $20 drop and you think now you make a great deal buying that product and you actually do, but aren’t they still in profit? it’s a smaller profit yes, but they are not going to loose anything because they also have thousand of articles they sell as well. The same with the expensive store.

Why this comparison? because it can be translated to web design industry as well; we have freelancers, and then we have companies; freelancers could be the superstores while the companies could be the expensive stores; maybe not the best comparison ever, but hey :)

Maria Malidaki

February 19th, 2011

@Kos, thank you for the examples :) Yup, I know this strategy…It’s that I don’t like it that makes me not recommend it in the article, because for me it deals with the client rather dishonestly. :(

Clients do know the cost for web construction is not linked to actual material cost, especially for freelancers (as it would be for goods, where you know you pay the starter materials, plus the merchant, plus the transportation to the store, plus the ad etc). With goods, the situation is a little clearer. With web services, clients do know they are largely paying for technical effort and creativity, and those things can be subjective to evaluate. Some might believe your work deserves 100$, others may think it deserves 1000$. This large variation can’t easily occur in the minds of clients that buy goods – the majority will think that, say, a table costs a standard price more or less. This isn’t so easy to say with websites. Stores have a solid price basis where they can step on, but you don’t really have that on web work.

Yao

February 19th, 2011

A very informative article and very appliccable to what I’m experiencing right now.

Me and my partner have just had a typical case of “customers should never feel comfortable enough to demand a discount” -We’ve been commissioned with a job for packaging redesign proposals, with a follow-up of actual production of the package designs upon approval, as well as product catalogues and a website. We’ve never appplies discounts for them until this job, which we did out of appreciation of their continued purchases with us, as well as the foresight of continued business in a multi-phase project.

However, they came back with a counterproposition involving a >25% discount on the already discounted price, with a ‘guarantee’ on more work (website). Now, they could always go to someone else for the other elements in the project and that is their god-given right but me and my partner decided not to dive below our proposition for the job, even if it means losing future commissions. We do believe that we made a very reasonable price, especially given the fact that we have a tremendously tight deadline to work up against…

Now, business is business of course, but this time I’ve actually felt a little insulted…

Thewebcitizen

February 21st, 2011

Hi Maria

First and most important for me is to make sure that you can really afford to give a discount and not just do it because others do. Furthermore, never discount your premium products because they automatically lose value, price determines value in many cases.

Elias

Maria Malidaki

February 21st, 2011

@Yao, I believe you handled the case perfectly :)

@Thewebcitizen, precisely. Defining whether your finances can sustain discounts is the primary concern, as mentioned in the article. As far as the value of the services goes, premium or not, it really depends how you manage this, what sort of discounts you wish to apply, for what reason, how and when you apply it. You don’t lose value in its general meaning if you apply a discount on a premium service of one of your customers, that has been privately discussed. There’s risk when you apply general and announced discounts on any service, and this is where it needs careful handling. :)

Marcell Purham

February 27th, 2011

Great article. Yes I agree with not giving out discounts to everyone because you won’t make anything from it but about 5 people or so is good depending on website size.

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