@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. :)

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

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…

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.

[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 :)

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.

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]

@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.