I used to be a pretty naive person.
You see, I had this nasty habit of actually believing what people told me. Now as a personal quality, I imagine it’s not such a bad thing. But as a business skill, it can be a huge (and expensive) liability.
Here’s just one example…
It has to do with something I call, “The Promise.”
“The Promise” is the name I’ve given to those times when you discount your services in return for “the promise” of future business.
If you’re in a service business, your client might say something like, “If this works out well, I have A LOT more work to send your way. Consider that when you send me your quote.”
So you offer a discount in exchange for the future work. You feel good. Your client gets what he wants. Everyone’s happy.
But here’s the real question:
What is the value of something that doesn’t yet exist?
Just how valuable is the “future work” that you don’t have yet? The “future projects” that don’t exist?
Can you pay your bills with that?
Can you feed your children?
And what happens when that “future work” doesn’t show up for 9 months?
Sometimes it takes that long. And other times the future work just vanishes…
Frankly, the only reason I’ve ever discounted my services is because I was scared. Scared of losing the business. Or scared of what someone might think if the price was too high. And by doing that, I violated a very important “rule of business” we’ll get to in just a moment.
But first, here’s the reason that “discounting” creates a problem that is actually much, much worse than simply the dollar value of your discount.
What might not be obvious is that along with your agreement to accept “the promise” and provide a discount, something else ALSO happened.
Here’s what happened:
You’ve been framed as a discounter.
Deep in the dark corner of your client’s or customer’s mind, their perception of you has forever shifted.
And whether or not you realize it, you’ve set the expectation about what it means to do business with you.
You’ve planted the seed that discounts are possible. That it’s possible to have you give them “free money” without offering anything in return.
And the question they’ll be asking themselves from this point forward is, “Just how low will he go?”
Once you’ve been framed, it’s very difficult to alter that perception… ever.
IMPORTANT NOTE: This principle is the same whether you have one client, many clients or even if you own a web based business that sells products.
Most business owners choose to discount because they hope it will make people buy more. Sounds like common sense doesn’t it?
It’s not as easy as it sounds.
Because when business owners discount the wrong way, they often forget to factor in the other “invisible” cost that comes along with any price reduction. That “invisible cost” is something I call…
The hidden cost of discounting.
The hidden cost of discounting can really only be quantified by peering inside the head of your customer and understanding how your discount affects their perception of your business.
If you’re not being smart about discounting, your actions will erode your buyer’s perception of you, your value and your business. Your discounting will make you look desperate, needy and weak.
Customers tend not to be attracted to those who are desperate, so it’s in your best interest to avoid creating that perception.
The smart way to discount.
Now let me be clear here…
It’s not really discounting that’s the problem. Discounting can be a very powerful tool in your business bag of tricks. You just have to use it in a smart way.
The problem though is business owners (service professionals and product based businesses) often discount their wares without getting anything concrete in return. That shifts the scales and makes the overall value exchange completely lopsided. And when the value exchange is lopsided, you hurt your credibility, your bottom line and your prospects of future business.
You’re in effect moving backwards in your business.
If you truly believe the world needs your valuable products or services more than they need their money (if you don’t, you should), then why in the world would you ask anything less for your goods than the maximum price the market will bear?
So how do you “discount” your services in a way that actually helps you?
Let’s take an example from a service business:
What do you do when your client says, “How about a discount?”
The first thing you do is wake-up and realize that there are more than two answers to this question. Yes or No are not your only options.
A better option is to use that question as your cue to get creative.
If there is future work, how about offering a 25% discount in exchange for payment for the next project now?
That’s a real value exchange. The client gets their discount. You get a boost to your cashflow.
The bottom line is really very simple:
Never ever screw up the value exchange in a business relationship. If you give something, ask for something. It doesn’t always have to be dollars and cents. It could be specific payment terms (upfront payment) or it could be something else.
Where you get into trouble is when you offer a concession to your client or customer (lower price, etc.) without receiving anything in return. As nice as that sounds, it’s a business killer.
Here are two mantras for every sales negotiation. Repeat these to yourself until you feel them. (Generating the feeling is really the key.)
1. I don’t need the business.
2. I don’t need the money.
I’m not playing make believe here and suggesting you go around chanting phrases like “I’m rich, unlimited money is flowing to me” even if you’re struggling to keep the lights on.
That’s crazy talk.
Simply use these two ideas to keep yourself from making stupid decisions when you’re in a sales negotiation or when you’re creating an offer for your clients and customers.
If those two mantras are true, would you ever find it necessary to discount anything in return for the promise of future business?
No… there’d be no logical reason to. Unless you were making a deliberate choice to do it for no other reason than to be nice.
Those two phrases will keep you out of trouble and they’ll keep your focus in business where it should be: on the exchange of real value between you and your clients and customers.[Ed. Note: Jason Leister is an internet entrepreneur, direct response copywriter and editor of “The Client Letter,” the daily e-letter from ClientsSuck.net, where he helps independent professionals create success. You can contact him via his website at JasonLeister.com.]