The difficult decision of whether or not to discount a service to close certain sales is an issue every service based business faces. Service businesses often have extra capacity as employees are not billing 100% of their time, and customers (and potential customers) know that the lack of complete utilization means there may be room to haggle over price. Reducing the price to close a deal is often tempting, however, it is rarely a good idea for three reasons:
- The Short Term Benefit is Outweighed by the Potential Long Term Damage
The decision to discount a service is typically driven by whether or not the short term need for cash warrants the discounting in hopes of landing a client. While short term cash concerns seem like the most important issue for a business, the long term damage to the brand is far more important. Most service based businesses rely on word of mouth and referrals for their clients. A person who haggles with your business to see if they can get a discount is not the person who will give you a good referral. In fact, if the person makes a referral they will most likely do it by explaining how they were able to get a great deal. Would you rather potential clients hear your company provides an excellent service, or you are willing to do work on the cheap out of desperation?
- Confusing to Sales Personnel
Product manufacturers are able to offer customers discounts based upon such metrics as the number purchased. The math is simple and the formulas are set in stone which means sales personnel must simply calculate the discount. Service based discounts are essentially a discount on the hourly rate because any client who is haggling over price expects the same service as a client who will be paying the full price. There is no formula to explain this discount to sales personnel which means every case is subjective so every request for a discount will have to be reviewed on a case by case basis. The constant review makes the sales process very confusing for leads and sales people because no one knows the correct answer and there is no real justification which means explaining the discount is almost impossible. The process of haggling over the price of a service devalues and discredits the service and the company providing it instantly in the consumers’ mind as well as the overall market place. Again the short term gain is lost to the long term difficulty it causes.
- These are Not the Clients You Want
Unlike the product manufacturer’s discount for bulk, there is no way to discount hours when they are purchased in bulk because the expenses are the employees’ salaries who work the hours. Employees do not discount their salary to accommodate for the client which means the difference from the discount must come straight from the bottom line of the company. Few clients are worth the long term damage to the value of the company’s bottom line to justify discounting the services. These clients will not only hurt the bottom line, but just as good customers refer good customers, bad customers refer bad customers. Customers who haggle to see if they can get a deal will be the first to tell everyone they know about the deal they were able to get not the service that was provided. This takes us back to number one the short term benefits are outweighed by the long term damage.
Service based businesses often do not operate at full capacity, but that is not a reason to discount the services provided. The people who receive a discount rarely refer quality clients and expect the same, or a higher level of, service than those who pay the full price. Next time a lead tries to haggle, tell them no and if they do not become a client take the hours that would have been spent on that client and use them to meet internally to find a way to attract a quality client. The upside value of the brand will be much greater in the long run.