I was having a conversation with clients who are running a startup business. We were discussing pricing, when one of the partners explained “the first person pays full price, then we discount each additional person by 20%”. Why, I asked, did the client ask for it? “well, no. They just expect it”. Again, I asked, why? There had no answer. My only response was, STOP!

When we are in business, especially in start-up phase, cash flow is everything. Our biggest fear is a lack of money coming in the door. In light of that, we do whatever it takes to close the deal, and a common first reaction is to offer discounts. Even when no one is asking for it. The reality is, we are only negotiating with our own fears and insecurities. Many years ago, one of my best mentors and I had a similar conversation. His response to me when I insisted, I couldn’t charge more for my services was, “stop imparting your cheapness on your clients. They are not nearly as cheap as you.”

At that moment, I raised my rates 20%, I stopped giving discounts, I stopped competing on price. And you know what happened? Nothing. Nothing in the sense that nobody questioned it, my customers didn’t care, and I didn’t lose a bit of business. In fact, in the end I got more. What did happen, is I made more profit per transaction, I was perceived as a value leader, and I got rid of a lot of cheap, pain-in-the-ass clients, that wasted time and resources I could have applied to more profitable clients that appreciated the value that I brought them.

Here are reasons you need to stop discounting now.

Diamonds, last forever… So do discounts.

Once you have offered a client a discount, you have just lowered the bar on the perception of the value of the service you provide. Once that perception is in place, it is almost impossible to change. Now going forward, if you don’t continue to honor that discount, there is a good chance that client will price shop you and move on. It’s like trying to put the genie back in the bottle. Every time you try to increase prices, you will be forced to have the “what about my discount?” conversation.

If you are negotiating, and feel you have to give the prospect something, give the client something for free. People love free, and best of all, no one expects free to be ongoing and forever. Free has an implied perception of one time only. You haven’t devalued your service, instead you have presented yourself as a generous business partner. Win-win.

Discounts can kill the goose.

The most important asset you have in any business are your repeat customers.  Those repeat customers that pay full price, do so because they see value in your services. The best way to destroy the perception of value in the eyes of those clients, is for them to find out someone else is paying less for you to perform the same services. At best it will complicate a good relationship, at worst it will erode trust, possibly to the point of losing the client that has been paying you well for a long time. There is no greater value in business then the lifetime value of a client. Protect it at all costs, even if it means having a prospect walk away, because you wouldn’t discount your price.

It demonstrates a lack of confidence in what you provide.

Not every potential client will see the value you are offering. That’s OK. In every market there are price leaders and value leaders. In most cities in the United States there is a Nordstrom’s Department Store, and there is a Walmart. Both are successful. But here’s the trick, you have to pick one side or the other! You cannot play in both boxes.  Walmart is not going to be selling Rolex’s anytime soon, and chances are you will never see a Nordstrom’s add claiming to be the “Lowest Price, Guaranteed”. As a small business owner, it will be almost impossible to compete on price and win, not long term. Some larger company with more resources and scales of economy will certainly come into the market and outbid you. It is one of the undisputed laws of economics, commodity prices will always seek equilibrium, where the sales price is equal to the cost. The only real play for a small business is to differentiate and charge a premium. People don’t mind, and you could even argue in a lot of cases, like to pay a premium for something that is perceived as higher value. A $25.00 Casio watch can keep time better than a $12,000 Rolex (Yes, it really does!). But yet, Rolex continues to outsell their inventory year after year. Why? Perception of value, and scarcity.

When you discount your price, you telegraph to the prospect, that even you don’t believe that what you are selling is worth the price that you put on it. And once you step foot into the price leader box, there is no escape. Not only have you devalued your product, proving to the prospect that you are just another commodity, but now you have lost credibility, and signaled that now everything is up for negotiation.



If you would like a copy of Encore Strategic Consulting’s matrix which shows how much more you need to sell, to compensate for discounts, and how much business you would need to lose if you were to raise prices email us at: info@encoresc.com with DISCOUNTS in the subject line.