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Be wary of discounting on a regular basis to gain sales. It can be a sound strategy if you are aiming to find new customers and sell loss leaders, or you have a cost or price advantage. Discounting can also work in certain circumstances, for example, selling off old stock or to release working capital if funds are required more urgently elsewhere.

But if you’re fighting a price war with a competitor with deeper pockets, they’re probably always going to win a price war.

Other impacts from offering discounts can include:

• Customers can get the impression that the services being offered aren’t worth paying full price for.
• Setting a precedent in the customer’s mind that your pricing is always up for negotiation.
• Discounting sets a tone that could impact future opportunities to increase your margin. Once you’ve lowered the perceived value initially, clients/customers will expect the same price moving forward.

Your number one priority should be focusing on the value of the product or service, rather than the price.

• When offering a discount to one customer, but not to another, you now have different price structures for the same product or level of service, causing potential headaches for staff.
• This demonstrates a lack of confidence in your business value.
• It squeezes your profit margin unnecessarily.
• The profit margin you lose through discounting must be made up for in future sales, forcing you to close more deals at a higher price to compensate.
• To maintain margins after selling at a discount, you may need to find other ways to lower your costs either by reducing material costs or decreasing the activities associated with servicing.

The best alternative to discounting is to be crystal clear and confident in presenting your value proposition.

Pricing high

It goes without saying that increasing your price generates the opposite effect of discounting. For example:

• Customers believe you’re offering better quality.
• You’re able to increase your margin.
• You demonstrate confidence in your business value.
• The profit margin you gain gives you more flexibility to negotiate or support loyal customers.

Again, try this yourself. This time see what happens when you increase the price by 5%, 10% and 20%. The number of items or hours you need to sell, to recover your overheads and make a profit, plummets.

It’s reasonable for customers to expect the best deal possible, but discounting creates a variety of problems that impact profit margin, customer satisfaction, and even your reputation. Better alternatives include becoming stronger at demonstrating your value, reducing all unnecessary costs to match the customer’s budget needs, or walking away from a deal that won’t be profitable.