Are you thinking about discounting your services and not sure whether it is the right thing to do? As a service-based solopreneur, freelancer or small business owner discounting your prices is an important business decision and I’m going to walk you through some key things to consider to help you make an informed decision about any discounts you offer in the future.

When it comes to marketing, Pricing is a major part of the equation. In fact, one of the first things you learn when you study marketing is the Marketing Mix 4P’s. The four P’s are:

• Product (or Service)
• Price
• Place
• Promotion

Your pricing will have an implication on who buys your services, as well as where you are positioned in the marketplace so it is essential that you consider your pricing carefully. Also, being confident with your pricing will help you during the sales product. And of course, setting the right prices impacts the volume of work you need to do or sell in order to reach your revenue or sales targets. 

 

WHY DO BUSINESSES DISCOUNT?

If you are thinking about discounting your prices at the moment the likelihood is you are considering discounting in order to increase sales.

The thinking is that by reducing your prices the demand will increase. I remember first coming across this thinking back when I was studying business and was introduced to the concept – Price Elasticity of Demand. This is simply an equation that you can use to measure the responsiveness of the quantity demanded when only a price is changed.

Now the problem is that if you haven’t discounted before you won’t know what your price elasticity of demand. However, that doesn’t mean you can’t do some number crunching to work out increase in sales you would need to make the discounting worthwhile.

 

IS DISCOUNTING YOUR SERVICES GOING TO INCREASE REVENUE?

Depending on the size of the discount you can work out how many more units you would need to sell to make the same revenue.

For example:
If you discount by 10%, you need to sell 11% more
If you discount by 25%, you need to 33%
If you discount by 33%, you need to 50%

Once you have the figures you can think consider whether you think you’ll easily be able to make the necessary uplift and therefore have the potential to generate more revenue through discounting.

 

WILL DISCOUNTING DAMAGE REVENUE IN THE LONG-TERM?

Often discounting is used to increase sales with a focus on being on the short-term. Maybe cash-flow is low at the moment, or you are trying to reach a monthly, quarterly or annual goal? Whenever you think about discounting you should think about the long-term implications.

Customers are savvy nowadays. It is easier than ever to compare prices. Most people will only pay full price for things they know they need to pay full price for. For example, I have a MacBook Pro. When I knew I needed to get a new computer I didn’t think I’m going to wait for a sale because I know on the whole Apple don’t discount. However, we all know of businesses that are known for discounting and people will just wait for the next sale.

So you need to think will discounting this service at the moment mean people will wait for more discounts in the future.

 

WHEN IS A GOOD TIME TO DISCOUNT?

On the whole, I’m not a big fan of discounting, but there are certain times where it definitely makes sense.

• Discontinuing a service – Maybe you have decided that you are going to stop offering something. You can run a last-chance promotion.
• Extra capacity – If you are running an event it is likely your costs are fixed and the supply (your number of seats is fixed). If you have extra spaces available with only a short time to go then discounting the final spaces to that demands meets supply makes sense. (Then you should reconsider your pricing before you do another event).
  
• Running out of date – If you have products are part of your business then you might have something that is end of the season, year specific etc. In this case, it is absolutely fine to discount.

 

HOW TO MINIMISE THE DAMAGE OF DISCOUNTING?

As I’m sure you can tell I’m not a massive fan of discounting, but I know sometimes it has to be done. So if you are going to discount here are some way to minimise the damage.

1. Get involved with a bigger promotion – Black Friday sales are growing year on year with businesses big and small being involved. Running a promotion during Black Friday/Cyber Monday is likely to be less damaging, and forgotten more quickly, than if you ran your own promotion.
2. Promote to a closed user group – Think about whether you could offer a discount to a closed user group. This could be a new audience and you offer a discount for their first purchase with you.
3. Limit your promotion of the offer – Some evidence lives on longer than others. Maybe you run a discount to your email subscribers, but your website has your standard rates.
4. Give a reason – For example, once I saw a coach offering a discount because they were about to take a break. It absolutely made sense that they wanted to have their books full for when they returned so they could take a proper break without trying to book new clients. This resulted in me not having a negative impression of the reduction in rates.

 

 

HOW TO AVOID DISCOUNTING?

Discounting can be dangerous for your business and ultimately it might not even fulfil your objectives. Therefore, how can you avoid it? As I mentioned earlier, discounting is used to increase sales and ultimately overall income. Therefore, the best way to avoid discounting is to ensure you have the right pricing in the first place and are able to hit your sales targets at that price.

If you consistently feel as if you aren’t hitting your sales targets then you need to review your pricing and your marketing strategy.

Discounting should only be used as a short-term tactic and ideally not try often.

 

 

DISCOUNTING IS DANGEROUS BUT IS IT WORTH IT?

Only you can decide whether it is worthwhile to offer discounts in your business, but hopefully, this post will help you to ask yourself the right questions before you make a future discounting decision.

 

I hope you have enjoyed this post and if you any other thoughts on discounting or pricing please let me know in the comments below.