Do you tell yourself that to improve your turnover, you will have to lower your prices for a time? But, is this paradox true? Take the time to read through the article below. You’ll find advice, suggestions and helpful answers to questions every entrepreneur asks themselves about this issue sooner or later.
1. DEFINE THE GOAL OF YOUR PRICE REDUCTION
Let’s be honest: many entrepreneurs don’t have any idea why they give discounts or simply don’t ask themselves the question. They give discounts because they think that’s what their customers want or because their competitors do.
They are always secretly hopeful that the strategy will enable them to earn more money. In the end, regardless of how you look at it, discounts must help you increase your profits.
You can achieve this vague goal in several ways:
- Getting new customers
- Quickly selling a product inventory.
- Highlighting a new product or service.
These goals are very vague and won’t do the trick. In order to execute a sales strategy that will bear fruit, you must define concrete and measurable objectives.
EXAMPLE: SET A GOAL FOR YOUR PRICE REDUCTION
Mathieu works as a photographer part time. Yes! The part-time self-employed can also give discounts.
He would like to complete five new photo shoots in two months. He has only done portraits so far, but he
sees potential in wedding shoots.
He launches a targeted campaign for this segment. The way he disseminates it isn't important in this case.
On the other hand, what is important is that Mathieu has clearly defined his goal: Five shoots in two months.
That provides him with a milestone. He records the deadline in his agenda. This way he makes sure he won’t forget to evaluate his goal (and the resources he deploys to reach it).
Set concrete and measurable targets for your discount.
2. SHOULD YOU REALLY OFFER A DISCOUNT?
This was probably the first question you should have asked. But, as the saying goes, better late than never. You set a goal and are now planning to offer a discount to reach it.
However, there are probably many other ways you could reach the same goal. Let’s go back to the vague goals we raised in our first tip:
- The acquisition of new customers can also be achieved by being more active on social networks.
- You can also quickly sell a product inventory by highlighting it on your website or in your brochure.
- A new product or service can be promoted using a press release, which will attract new customers or in a newsletter for your current customers.
Giving a discount is the easy way out. Careful! We’re not saying you should never give them. However, before doing so it’s better to first try to find out if there are any other options available.
Discounts aren’t a magic formula to generate profits. Always start by checking if there isn’t another way to convince your customers.
3. SET YOUR PRICE BEFORE GIVING A REDUCTION
It’s essential that, before giving a discount, you set the price of your services or of your products.
Your base prices are one of the pillars of your pricing strategy and as such, contribute to the success of your company. Not everyone will pay a high price. On the other hand, if you offer low prices, some customers may have doubts about the quality of your offering.
Discounts don’t make people suspicious. The worst thing you can do is set your promotional prices haphazardly. You must be sure that your discount doesn't cost you more than you’re expecting it to make for you.
If your base price was calculated approximately, the reduction you offer will be based on assumptions. An error that will often cost you...
4. MAKE SURE THAT THE DISCOUNT ISN'T MISLEADING
Although this tip may seem logical, supposed discounts are more and more often merely misleading advertising. Or that’s what it appears to be. Consumers and companies that are given a discount are often suspicious.
They compare your promotional prices with the prices on your previous invoices, on your website or in your catalogue/brochure.
Be sure to absolutely avoid “reduced” prices that are either the same or higher. You will immediately lose all credibility.
This type of faux pas isn’t always the result of ill intentions. To err is human, but errors can be avoided.
- In summary, set your base price and calculate your discount based on that number.
- Pay close attention to your promotional prices (and your marketing in this case). If a customer doubts your honesty, you can convince them more easily this way.
As the word indicates, a discount consists in lowering a price. Be sure that you really do.
5. ALWAYS LIMIT YOUR PROMOTIONS IN TIME
Reductions are just one of the weapons you have to convince customers to buy from you. However, they will only be effective if you limit them in time. If you constantly offer discounted prices, your customers will have lots of time to think about your offering...and to forget about it.
To be effective, your special offer has to have an expiry date which you must mention in your marketing (emails, brochures, adverts, etc.):
- Temporary offer.
- Only valid until...
- Special offer today only
- Only 1 day, 12 hours, 3 minutes and 6 seconds left
The shorter the period, the more pressure customers will feel. In other words, the less time they have to think, the greater your chances of selling.
This strategy doesn’t work for all entrepreneurs. You have to set (and test) the thinking time you give your customers.
There has to be enough time between the time you inform them of the special offer and the time it ends. Customers must have time to learn about your discount. If they weren’t able to take advantage of it because they didn’t have enough time, they may complain.
Always limit your promotions in time.
6. DON’T HESITATE TO ASK FOR SOMETHING IN EXCHANGE FOR YOUR DISCOUNT
To ensure that a discount is profitable, you always need to set a time limit and a better price, to which you can also add other conditions. Here a few examples for inspiration:
- Starting at €xxx in purchases: encourages customers to buy more.
- Offer limited to the first 100 customers: a little extra pressure to reach your target more quickly.
- Only valid on presentation of this advert: a visit to your shop or office provides an opportunity to meet.
- Enter your contact information here to receive your rebate code by email: good contact data are marketing gold.
- Like us on Facebook and get a discount of...: additional advertising for you company is priceless.
Putting additional conditions to your discounts puts pressure on customers. They have to do a little more to take advantage of them.
This can work in both directions. The more conditions you add the higher the threshold to get a discount. The benefit to you? Better control over your special offer, and a significant amount of precious information to add to your customer database.
When you offer a discount, don't hesitate to ask for something in exchange. For example, it could be a visit to your company or shop, precious customer data or advertising on social networks.
7. BRIEFLY EXPLAIN THE SPECIAL OFFER
As crazy as it may seem, you need an excellent reason to offer discounts to your customers. Or to say this better: when you give them a discount, your customers want to know why.
You will appear suspect if you don’t explain why your price has decreased. If you don’t do it, their imagination may run wild… This won’t always work in your favour. Without an explanation from you, they may think that you’re simply trying to get rid of your “junk”.
No need to give a super complicated explanation. Often just explaining that you are offering a time-limited discount is enough.
- Temporary reduction.
- This week only: 10% off
- Summer special
The fact that your discount is limited in time is often enough of an explanation. However, you can always be more original and convincing. Find out how, by reading our next tip.
8. GIVE YOUR SPECIAL OFFER A NAME
You give a name to all of your products and services. Why not do the same for your special offers? There’s actually nothing odd about it. You may even benefit.
A clear name for your special offer will avoid any misunderstandings, especially if you have specials on a regular basis. You will avoid any confusion - for clients and for yourself.
Naming your special offer is also the perfect opportunity to test marketing channels. You can give it different names, even if you are offering the same conditions (discount, duration, etc.). You can talk about an “Father’s Day special” in an advert in a newspaper and use the slogan “XXX slashes prices” on your website.
Then you will just have to identify the channel in which your discount attracted the most people. This information is always useful to know.
If you are short on inspiration, you can use traditional names. Most of them will explain the reason for the special offer.
- Valentine’s Day sale
- Autumn discount
- Renovation sale
- Spring cleaning sale: everything must go
- New product offer
- Loyal customer discount
- Quantity discount
Give your special offer a name. This will avoid any confusion and will also be clearer at the marketing and administrative levels.
9. THE DIFFERENCE BETWEEN A SALES DISCOUNT AND A FINANCIAL DISCOUNT
The list in the above point may give the impression that you can give all kinds of discounts.
However, from an accounting standpoint, there are only two types. It’s better to know this, because it will determine the way in which VAT will be calculated on your invoice.
COMMERCIAL DISCOUNT: SELL MORE
A commercial discount is given for...sales reasons. In other words, you want to boost your sales. As a result, you offer your customers a discount to convince them to buy your products or services. All of the examples above are this type.
FINANCIAL DISCOUNT: GET YOUR MONEY FASTER
A financial discount is a way to encourage customers to pay your invoices faster. You literally reward your customer with a discount on condition that they pay you.
As for commercial reductions, time is a driving factor.
Another point in common: the customer has a choice. They are free to take advantage of the discount if they want. Not everyone does. Nothing provides you with 100% guarantee that you will be paid quickly.
It would be wrong to assume that your customer is experiencing financial difficulties because they don’t take advantage of your reduction for cash payments. There are many good reasons not to.
- Customers who aren’t having money problems won’t wait for your discount. There are like people who don’t wait for special prices at an Auto Show to buy a new car.
- A company’s payment cycle can be complicated. When an invoice is received, it goes through several departments before landing on the desk of the person responsible for making payments. It’s very possible that at that time the deadline you set has already passed.
- Forgoing a financial reduction is sometimes the result of too much work, an omission or a lack of attention.
Offering a financial discount does not guarantee that you will be paid quickly. In this case, it’s better to issue a down payment invoice.
10. DEAR SELF-EMPLOYED, DON’T OFFER DISCOUNTS ON YOUR HOURLY RATE
As a self-employed service provider, you have an additional challenge. You would like to offer your customers a discount, but since you don’t sell products, you really don’t have a choice: you have to reduce your hourly rate.
However, this isn’t a good idea, because you will decrease the value you assign to your main source of revenue, your time.
- Even if this isn’t the case, customers will quickly understand that you are now willing to lower your hourly rate. Incredible, but true! What is true for products, does not apply to time.
- Your reduced hourly rate, which should only be applied for a special offer, may be shared with potential new customers (and it will be). You will find it extremely difficult to ask them to pay your normal rate.
If you do, nevertheless, want to offer a discount, do it for certain specific projects making this clear in your estimate. In this case, however, never include your hourly rate anywhere.
11. WHY (OR WHY NOT) GIVE A DISCOUNT?
You can give a discount on your entire offering. If you’re liquidating your inventory, want to get rid of it (sales, quick sale), renovating, etc. this is the most logical choice.
On the other hand, unless you are planning to radically change directions, it’s better to limit your discount to a specific selection of products or services.
ARE YOUR SALES HEALTHY? DON’T GIVE DISCOUNTS
Never give discounts on products or services that are already selling well. Your customers are satisfied and agree with the price. Offering a discount could work against you.
AT THE START OF THE SALES CYCLE? OFFER A DISCOUNT.
Products and services at the start of their sales cycle are ideal candidates for special offers. A discount will encourage new customers to come and buy from you and, with a little luck (and some effort on your part), to order again.
For example, as a graphic artist, you can offer a discount on the logos you create.
Companies starting off need discounts and often have a limited budget. If you can convince them to use your services and you also do excellent work, it’s very likely that your business will grow with theirs.
Never give discounts on your most popular products.
12. WHAT IS THE BEST DISCOUNT TO GIVE?
You have to take many different factors into account as you did when you set your pricing. Your discount has to be high enough to interest your customers. A €5 discount on €1,000 won’t be of interest to very many people. On the other hand, a €5 discount on €20 will work every time.
Percentages that require more calculations will have a lot more impact than fixed amounts. Let’s take an example. Which of the following two discounts do you find most interesting?
- A €50 discount on €1,000?
- Or a 5% discount on a €1,000 purchase?
Although the actual amount is €50 in both cases, it’s likely that you found the percentage discount more attractive. So, you should plan to use this strategy yourself.
Express your discounts as a percentage. This will have more impact than using fixed amounts.
CONCLUSION: ARE DISCOUNTS FOR YOU?
Like entrepreneurship in general, the topic of discounts is very interesting and full of surprises. We hope that the tips above will help you take important decisions. But remember: only you can make those choices.
This article was originally published on the CoManage website (in Dutch). It was translated and published here with their permission.