In Business, Should You Play Santa or the Grinch?

There are several big selling seasons businesses count upon in each fiscal year. Christmas is naturally the biggest of them all. After all, Easter, Mother’s or Father’s Day selling doesn’t start three months before the actual holiday… and that was this year! Next year, the season may start after July Fourth if retailers think they can get away with it.

“Black Friday,” which traditionally started the selling season the day after Thanksgiving has been extended to Thanksgiving day itself and in some advertised specials, even before on “Pre-Black Friday Sales.” And, lest we forget, the new way to honor the season of peace, joy and giving — “Cyber Monday!” Oddly enough, judging by my daily emails, both “Black Friday” and “Cyber Monday” are still going strong as of this article date. I doubt it will stop until midnight, Christmas Eve… to be followed on December 27th by the clearance sales.

Squeezing out of a store the other day, my children asked me how retailers could discount items so much and still make a profit. I pointed out that the signs that said “$89.99 – save $20 off the regular price of $109.99” was just to have people thinking they were getting a spectacular bargain. “When we come back in January, the sign will either say the same thing or it will be priced at $99.99 and the store will still make a profit.”

Naturally, the kids were confused. “Why don’t they just charge $89.99 all the time,” said my youngest child. How does one explain retail and consumerism in simple terms? How do I explain the emails I receive every day that discount something I had purchased several weeks before? How do I explain keystone pricing from wholesale to retail and the economics of selling?

“Sometimes you make less profit off some items because the discount helps you sell more items and you end up making more money,” I told them. They seemed to understand that. It was easier than telling them that stores charged too much in the first place and paid their workers slave wages. My kids are turning into little anarchists without any help from me.

Sure, during a season of gift giving, people are out to buy more and the discounts are evened out by pure volume. The same may be said for the numerous email specials I receive from online sellers. There are some products I’d like to buy but the price is just a bit too high. If I see it discounted in an email, I am more likely to reconsider making a purchase, as will other consumers and BINGO! volume makes up for the lower profit margin.

That’s the key to retail. Discounts attract customers but they won’t guarantee retention unless you have a rewards program or frequent buyer discount. Consumers are always shopping for the best price.

Service Industry Discounts: Why They’re Different

When you provide service to customers, such as web or graphic design, computer repair, app creation or anything freelance, discounts are a different consideration in what can be an hourly or even fixed price. For a fixed price, the project may suffer scope creep or run into changes that cut your bottom line and profit margin. Yes, as an independent businessperson, you deserve a profit as does any business. As a customer of an independent business person, you also have to understand there is a profit margin and these services are not favors or done for the love of one’s work.

The running joke in the service industry is not so funny when you realize the requests for discounts and free work are hauntingly all the same:

There will be paying work later.
If I like your work, I’ll consider you my “go-to-person” and then you’ll make lots of money.
My rich friends will see the work you did for me and they’ll hire you!
People will see the work and I’ll refer them to you.

As an April Fool’s Day joke for a client, I wrote and created fake ads and news headlines about the design/tech industry. One of the fake entries was an Amazon ad about how to get free graphic design work. Readers who didn’t realize it was a joke were outraged there was a book people were using to scam free work and the book is why they all used the same excuses. Perhaps there’s a real book out there for things like this. That would explain why I could never buy a carton of cigarettes in Kansas City without someone asking for “a pack off that carton.” Every freaking time!

There are prospective customers that will ask for discounts right from the start. A referral from a friend of my wife to his cousin brought the request for a “family discount.” There was, unfortunately, no family connection, no relationship and the project showed no sign of repeat business. There are good reasons for offering discounts to customers. There are good reasons why you shouldn’t.

In some countries and cultures, giving discounts to long-standing customers is a common (and expected) practice. Such clients might even expect or suggest it at some point, without being aggressive. If your budget can sustain a discount and a client of yours is actually that valuable, then consider offering one. If you deal on a global scale, know the customer’s culture and know when to entertain offering a discount.

Loyalty.
Payment punctuality.
Pre-paying for a large number of regular projects or offering a retainer for your services over a period of time.
The quality of collaboration (good communication, timely submission of materials, openness to ideas, professionalism, etc.).
A discount is for a large number of projects all at once.
The number of projects you have completed for them.
They’ve have referred great clients to you.

Of course, discounts can cause certain problems. If you offer too deep a discount, you can’t afford to complete the project and still eat. If you continuously offer discounts, you’ll convince your clients that your discounted rate is your normal rate, making it harder to change your rates in the future. Referrals from those clients can also lead to misunderstandings with new clients who will say, “well, my friend says you charge $$$$, so why are you quoting me $$$$$?” You can explain the discounted price and perhaps they will work with you to achieve a level of a deserved discount as well as a strong working relationship.

Discounts for new services are a great way to build a new customer base. If you’ve just learned how to create mobile apps, you will want to contact your customers and offer a discount on the new service to get apps out for others to see, remind clients you haven’t heard from in a while that you’re around and still provide great service and build your portfolio of samples to pitch to new clients.

The key to discounts is that both parties are happy. To quote a friend of mine; “cutting a deal is okay as long as you’re not cutting your own throat.”

A bad discount will only make you resent the client and that will negatively affect your work. Discounts do no excuse discounted efforts on your part. Clients may demand a discount without any give-or-take on their part. A former boss of mine would ask me to have freelancers redo work that had been accepted and paid for but when I would explian the need for a further budget for the extraneous changes, he would say, “tell them we’ll make it up to them.”

What he meant was, they would get more work from the company. Truth be told, they were going to get more work anyway because they were valuable resources and we needed them for content as much as they needed us for a pay check. Some people refused and still received further projects because we needed what they provided, which was income-generating work. Those that got scared and caved to not charging for changes never regained their bargaining strength. They were, as the saying goes; “owned.” Those that refused, when they were asked to return into the fold, they were more than happy to do so but it was always at a higher rate. They knew their value and so did we. Discounts and favors can be asked with respect and understanding but never demanded.

Personally, I’ve had that demand put upon my head. I’ve negotiated something in return or refused. When something was given in return, the relationship stayed strong and growth was received for both parties. When the demand was a threat, I refused and ultimately, the client would come back because, in the end, you get what you pay for when trying cheap approaches.

Bad Times… Hard Choices

We hear about companies that try to negotiate employee salaries and benefits down during times of falling sales. These can be caused by recession, change in consumer habits or mismanagement. Usually the employees cave and lower their income while executives receive higher bonuses. When you, as a vendor, are asked to lower your fees for a faltering client, there are few options. Some are deadly and others have possibilities for success.

Cave in for fear of losing a client. You will never be able to return to your previous fee structure. No one will tell you the crisis is over and hand you stacks of money.
Negotiate a cut in fee for a cut in service or trade in goods. Less money can mean less work or something the company produces that you can use. The company books show a cut in their bottom line but you remain at the same level in kind.
Contract for higher fees after a certain period by withholding the copyright to your work for a period of time. If the client breaks the contract or decides when business improves you are no longer needed because your rates will increase to previous levels, they must pay for the copyright or face some very messy legal issues.
Refuse (nicely) because you provide a valuable service at a value price. Most of the time, the client may abandon you for another vendor but it won’t take long for them to come back because you do get what you pay for.

A recent client of mine hired me to give their publication a bump in the industry. It didn’t take long for that to happen but they still struggled with hits on other author’s articles. From my very first contribution, they ignored pay dates and then started asking for submissions that increased work but paid less. I refused and they stopped calling me. Number started going down again and eventually the head of that publication was replaced. I didn’t hear from them again but noticed the publication had none of the previous contributors. My guess is they screwed too many people. Their site rank had fallen below previous levels, the readership was almost non-existent and their advertising spaces were half empty. So who won? Who profited? They have yet to contact me again but I replaced them with a client who respects me, my work and receives a nice discount for paying up front for a agreed upon number of articles. Everybody is happy.

Well, let’s face it… discounts entice people both monetarily and psychologically. There’s no shame about it and it’s not underhanded. It’s part of the business game when all parties play fair. Santa told me that. The Grinch agreed.