Should You Discount Your Fees?

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On our continuing journey to learn more about money, let’s talk about price discounts.

When selling products, prices are regularly discounted with an On Sale or 25% off sign. Sales are initiated for many reasons - overstock, slow sales, going out of business, and the need for more cash flow. Sales are viewed as a boon to the consumer. Some sales are regularly scheduled and planned, like the annual white sales. A key factor is that the products on sale are not perceived of as lesser value than they were at full retail price.

Many people discount shop, with the goal of paying less for the quality brands and products they want. The percentage discounted for products is widely advertised to bring in traffic. The perceived quality of the discounted products remains unaffected by the sale price. Businesses view this as a way to cash out on merchandise previously purchased. Customers see it as a windfall, a shopping bonanza.

I have several purses I wouldn’t have had they not been on sale. What about you? What’s in your home or office due to a sale? If On Sale affects your product buying decisions, does its equivalent, a discounted fee, motivate you to buy the service - life coaching, interior decorating, and financial consulting - you wanted but couldn’t afford, or couldn’t justify buying at its full price?

When discounting fees for services provided, business owners and customer perceptions appear to be different. As one respondent stated, “discounts feel cheap” sharing why he doesn’t discount.

Should Your Company Have a Discount Policy?

I took an informal survey among my 800+ followers on Twitter. I asked if they discounted their fees. The responses were mixed.

Discounts are private, not widely-publicized. Many solopreneurs and small business managers appear not to feel *good* about discounting fees. Are discounts good business, and good for your business?

Findings

What did I find? The men who participated in the survey indicated they didn’t discount fees. Several women said they sometimes discounted. An attorney indicated that she discounts “for multiple services; discounts for non-profits. She feels it’s “good strategy for building client loyalty.” I thought the differences might come down along gender lines. While it did, my sample size is too small to consider such differences meaningful.

As one Twitter responder said, “discounting is not ideal.” Yep. But what is? He went on to make a great suggestion. He advised, “Adding more value is better, or having a less expensive package with less value.” He’s right. If you discount your fees, decrease the features/benefits you provide for the discounted fee.

Reasons to Discount Your Fees

• To move a price sensitive prospect to say Yes
• To fill the last two seats in a class
• As an offer to new prospects
• To find out how price sensitive your products are
• To close more salesNow

Some Dos. Some Don’ts

There is nothing magical about pricing and prices. It isn’t the scientific formula some would like us to believe. In some instances, prices are largely arbitrary. Like the financial industry CEO and executive bonuses, prices are pretty much set at what the market will bear.

Do not automatically offer a discount. Don’t assume price is a barrier until it presents itself. Listen to the client’s cues that price is a deterrent. Only then think about offering a discount.

What if discounting fees adds more revenue to your bottom line? What if it represents revenue you would not have received without the “sale” price? What if your services add value and position the client to pay your full rate the next time? Are these then wise, or stoopid (uh, not so smart) business moves?

I think wise. Pragmatic. Possibly shrew.

Supply and Demand Revisited

When demand for your services is greater than your ability to supply those services, it’s time to increase your fees. I think the opposite may be equally true. Don’t let excess capacity (when prospects are currently unwilling or unable to buy at your prevailing price) intimidate or frighten you. Offer a discount to seriously interested prospects when you believe your fees are the stumbling block. Make the new offer based upon immediate acceptance of the deal. He says yes now, or the discount is withdrawn.

Money, Money, Money

So what’s this got to do with money? Everything! Most of my clients are small businesses owners. Cash flow (and the lack of it) determines their company’s viability. If periodically discounting your services helps you weather the ebb and flow of business cycles and sell more, I recommend that you discount. And feel good about your decision.

If you’re able to share your expertise with more people because you discounted your fees, you made a good decision. Pat yourself on the back. You cannot pay your mortgage, outsource work, or increase your investments without increasing revenue. Discounting, like selling, is a tactic designed to keep cash flowing and grow your base of satisfied customers. As Martha Stewart says, “it’s a good thing.” Martha knows business.

What do you think? Do you offer discounts? Why? Do you remember to provide fewer results for less fee? Tell me what your experiences have been in this area. I’ll share mine in return. Thank you.

Warmly,
Judith

PS  VOTE today! As a former Chicagoan, I want to say Vote Early and Often. But perhaps not. Vote your best-interests. Thanks.

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One Response to “Should You Discount Your Fees?”

1. Joyce Aldawood Says:
   November 10th, 2008 at 6:40 pm

   Hi Judith!
   Jjanusz Custom Jewelry Design can’t discount. We are already way too low priced for what we offer. we check out our “competition” all the time. The mall jewelry stores - even “on sale” are way overpriced for the quality of goods they offer. And the independent jewelry stores simply can not compete with us on quality or price. The status “name” jewelry stores are SO overpriced for what they offer…..So, no, since Jjanusz is already a tremendous value for the quality of the item- and since every item is custom made - so we have no stock that we have to move- we can’t offer prices any lower. We could do like the OTHER guys, and overprice to begin with- but then that just wouldn’t feel right!

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