I like to use food as my pricing inspiration.
Sounds odd I know, but stick with me.
We recently had a customer who was given an estimate. Savings over competitor estimate was around 25%. Pretty significant discount.
Let’s put it into perspective.
Assume the work was priced at $5,000. A 25% discount would be $1,250. That’s A LOT.
You might think the customer was happy, glad, grateful for the savings.
His response… “ummm I need bring that price down.”
My partners had a short text discussion which included things like:
- “We should give him more discount, we can make it back on the next job he gives us.”
- “I don’t want to upset him or lose the work by not helping him out.”
- “He’s a repeat customer, we should help him out.”
You want the work, so confirmation bias kicks in and you start to justify why you should continue to drop the price. You can convince yourself of anything and believe it. Worse than that we can always find supporting evidence to back up our bias.
As the dissenting voice, I jumped in with a few thoughts:
- If we save him money will he be eating a steak dinner while we munch on mac ‘n cheese?
- More importantly, if we always extend discounts will the customer just keep assuming he’ll get them?
- If we push him away where will he go… to the competition, where he will pay more?
- Does another $50 make that much of a difference to him in the scheme of things?
- Is it really about the money or is it about the ability to ask for and continue to get discounts?
Pay attention people! My initial reaction was “no more discounts”. I don’t know the guy, I’ve not met him. Only my partners have dealt with him. BUT I watch for clues.
We gave suggestions to reduce the job price without extending discounts. He said “yes” to some of the work, but said, “help me out with the price”. The price dropped to $1500 with the changes, should we drop it further?
Much vacillation occurred about whether or not the price should be discounted further and by how much.
But then… a development; some of the items we needed for the work had to be ordered. Cost to overnight items $80. Would the customer want to spend the money? He is in a hurry, he wants fast and cheap.
When asked about the $80 shipping add vs. $0 for ground, he said… wait for it…
So that tells me that the money is less an issue than speed but more importantly it tells me that asking for discounts is just a knee-jerk reaction. Something he probably does without thinking… with everyone. And that means he doesn’t need the discount, he just wants one.
When I pointed this out, we all agreed that no more discounts were in order.
This whole lesson played out in less than 24 hours. My partners were able to see the process at work and to see the forest for the trees because I could show them.
You may not have the opportunity to have the voice of dissention help you navigate this kind of price/discount dilemma. (You could always call me and have me yell, “No more discounts.”)
Here are some things to think about before you cave to the discount monster:
- Who is really getting the steak dinner and why?
- If you give another discount so they can afford to buy groceries… will you be able to buy your groceries?
- Is a discount really in order?
- Where will they go if you don’t give a discount?
90% of the time when I say “no” to a discount, the customer still takes the work. Why? Because generally they have some investment. If they’ve chosen you for a reason, then they will likely stick with you regardless of the discount. If they move on then they were just kicking the tires and you don’t want them as a client.
But let’s face it, “you don’t get if you don’t ask”, and many people use this as an excuse to keep asking for discounts or lower pricing.
By the same token, “you don’t get steak if you constantly settle for mac ‘n cheese”.
The choice is yours. But, I’d encourage you to spend some time really listening to what your clients are asking when they seek out those additional discounts. Is it just a don’t-ask-don’t-get knee-jerk reaction? Or will the few additional dollars really make a big difference to their bottom line.
I don’t ask for discounts personally, I think it’s rude. If I don’t like the price I go someplace else and that is generally only in the case of a commodity like gas or napkins. When it comes to services, once I’ve decided on the provider, I pay the price. If I can’t afford it… I wait until I can.
It’s all about respect for your vendors, service providers and ultimately for yourself. You deserve to be paid what you are worth and by caving you diminish your value.