Why Discounting Your Services Is Costing You More Than You Think

Welcome to the Creative Mind Smart Money Podcast, where we turn financial confusion into creative confidence. I'm Samantha Ek, the keeper and fractional CFO for creative entrepreneurs. Each week, I'm sharing my financial expertise and actionable strategies to help you build a thriving creative business. Plus, you'll hear from industry experts who bring fresh perspectives on growing your business beyond the numbers. Because building a successful creative business starts with strong financial foundations. Your next chapter starts now. Welcome back to another episode of the Creative Mind Smart Money Podcast. And today, we're talking all about discounting in terms of people feeling like it's such a good option, but not realizing that it's actually hurting and harming your business. So let's get into it today, shall we? One of the first questions I want to ask you is, have you ever discounted in your business and not just on talking about like a sale, but just because and how why did you do it? So when you think about discounting, when I think about discounting, I think about maybe, for example, running my business as a bookkeeper and saying, okay, you know, I'm going to offer this person $600 off of my top tier package, just because I like them. At the time, it feels amazing. It feels kind. It feels genuine. Six months down the road, when you have to up the rate of that person because you're doing too much work for the rate that you're doing, they're going to look at you and go like, that's a little crazy, you know what I mean? So it's definitely something difficult. Now, the story that most people tell themselves when they are discounting or, you know, when we do discount for our customers and things like that, is we tell ourselves, hey, you know, I'm being kind, I'm working with them, we're doing great. Everything feels pretty good when, you know, you're like, oh yeah, if I discount this just a little bit, I'm going to be able to get this client. Or if I discount this just a little bit, it's going to close the deal. I know it is. It feels great. I know it does. Trust me. It is a real issue in the long terms of this and we're going to chat about that. There's neck to this obviously. So what does discounting actually do to a profit margin? So obviously when we discount, we look at the bigger picture. So let's say that your service was $1,000 and you discounted 20%. When you look at that and you say, okay, so you have $1,000 contract, let's say, $2,000 of $1,200. It looks fine on paper, but when you get to the end of the month, if you're discounting $200 across taking clients, you know, what is that? 200 times 10. You know, that's $2,000, $2,000. Yeah, $2,000 that you're missing out on. If you don't know this already, and I'm personal now, I am a bookkeeper who's terrible at math. But bookkeeping and accounting has very little to do with math and a lot to do with problem solving and critical thinking. And I think I've mentioned that before, but a lot of people seem to assume that accountants should just naturally be good at math, but it's such a farce. Ooh, but anyways, back to the point. Why is 20% more damaging than it sounds? So you might be like, oh, Smith, the 20% isn't that bad, but your revenue is dropping immediately, but your expenses don't. So if you're onboarding a new client, your expenses are staying the same as what they were before. Nothing changes. You do have to book significantly more work to make up the difference. So if you have a $100 contract and you, or like $1,000 contract and you just lost $200, you are counting on $1,000, but you discounted it so that you could close the client, now you have to find a way to make that $200. Discounts obviously compounds, because if someone sees that you discounted the service one time, maybe they post that online, oh my gosh, this person's amazing. She can give me a discount. Now we'll send that to the expectation from them. And then if they see out online, it's the expectation from other people that might potentially be working with you. It can create a negative effect, a negative, real effect that you don't want to have to deal with, right? So why do we do it? As creatives, why are we driven to giving discounts beyond just being nice, beyond just being kind? Obviously the number one reason is the fear of rejection or the fear of losing this sale. So if you're a website designer, you're like, oh, if I discount this X amount, I'm going to close the sale. It's a fear, right? Because you're like, I just want to make sure I get this sale. I'm going to discount it. Again, it's feeling that your full price isn't justified yet. So you're like, oh, I don't know. This is like the right price. I don't know if it's justified. It's wanting to be accessible or helping people. It's the discomfort with the silence after giving someone a quoted price. There's so many reasons, emotional reasons behind this because we're like, oh, we just want to be kind. And then you give someone a price and they have sticker shock and they just go silent. So they're super communicative. And then all of a sudden you get to the pricing and they're like, um, I'm going to be a real quiet. But that is not on you necessarily, right? Because you have a price. You know your value, you know your worth. You need to be comfortable with that. And if you're looking at your pricing and you're saying, this is what I need to be at in order to be successful in order to run my business. You shouldn't shy away from that price because if you discount, what does that signal to your clients? Obviously, it's going to affect the way that they perceive you. And sometimes it can be in a positive light. Sometimes it can be in a negative light. Sometimes people see discounting is a sign of desperation. So they're seeing that you're desperate to get clients. You're going to discount and, you know, cut back on the cost of some of your services. That to them is a signal that, oh, yeah, okay. Well, you know, she's really nice about this. So maybe if I just work on her emotional side of things, she'll discount it again next month. And obviously the client, the relationship when you set discounts to precedent is going to become difficult, right? Because clients who get discounts often become very demanding because, you know, they're paying less, but expecting more. So that causes an unrealistic expectation. It does signal that your prices are negotiable. Because if you're constantly discounting, you're saying, oh, you know what? My normal packages are $1,000, but I'm going to give it to you for $800 just for today because I like you. When you have a set price, that's what your price is. And the clients who often push back on price are not perfect fits for you. And I want to remind you of that because a lot of times again, we feel fear of the rejection of losing the sale. But realistically, we should feel glad that that client didn't go through because they weren't the right client for you. They didn't like your price. They didn't feel comfortable with it. So discounting is obviously just going to, you know, cause some sort of issue in the future. So what do you do instead? Obviously, because if you want to work with these people, you really want to feel comfortable working with them. But you're like, you know, they genuinely can't afford the rates that I'm setting up. But what are the alternatives to discounting? Because maybe you guys get along swimmingly and you're like, this is such a great person. I really want to work with them. Like, how do I make that happen? How do you hold your price where to add while still trying to be a good person, while still trying to be kind and thoughtful and caring towards that person? Obviously having a smaller scope at a full rate. So not the same scope, but just having something smaller or lower rate. So something I don't advertise as often with people because, you know, it's not a package that I want people to ever be on because it's a temporary package, essentially to package where we hope that they're only on this package for up to less than 12 months because we've seen the business grow and they're like, we're like, now we need to get into the middle tier package. So, you know, we offer them a package where they don't get any sort of financials. Well, during the reconciling and the categorizing only, and that's it. And there's no sort of financials. There's no anything, but it keeps their books like tax-ready. So they're not really getting visibility. They need into their numbers, but they're getting their books done so that when we can't give them financials, they have those available and ready to go. Okay. Payment plans that work for both parties. And I want you to be sure that when we're talking about a payment plan, I'm not talking about something like, oh, hey, like a payment plan over six months because you've to think about it in the long term. Payment plan's not going to work really for retainer people, right? Because they're paying every month. But if it's something like a website design or something like that, that's something that you can offer to them. It's some sort of payment plan that works for both of you. Obviously, maybe a wait list or future availability when their budget aligns. Maybe you guys really like working together and you're like, okay, well, here's some of the openings I have later on down the road. If your budget aligns, let's meet up again at this time. You know, and then we're referring to someone who does fit their budget. That is the biggest compliment you can give a potential client because not only is it going to show them that you are not someone who is going to put them into some sort of danger, it might even convince them to work with you, even if you are slightly out of budget. Maybe they do have the money, but they're really strict on their budget. But now they're like, okay, you know what? This person is so kind and self-awful and so caring that they were referring to someone else in the chance of losing of this business. I want to work with them. I'm going to figure out a way to make it work again because if they do really want to work, they will find a way to make it work without you discounting and giving them some sort of bargain. So discounting is great. Honestly, there is a time to place for it though. And it is not when you want to close a sale, okay? If you're feeling guilty of charging full price, that's a time when you need to look at the bigger picture. Don't just look at the general thing. Look at the bigger picture and ask yourself all the expenses that you have, everything else that you've got going on. Is it worth discounting and are your services worth it? Like what value do you add or bring that makes your price worth it? What software costs do you have? What employees do you have? Things like that. And if I were to. say anything, you know, giving yourself permission, maybe having a permission slip from someone who's a bookkeeper myself again, if a client wants to work with you, they will find a way to make it work. Now, obviously, you know, it sucks when you're out of their budget and you really want to work with them. But again, if a client wants to work, you do, they will find a way to make it work. Whether they get more work, whether they come back to you later, whether they are like, you know, can we start in a month, whatever it is, they will find a way to make it work. So give yourself that grace to charge what you're worth and allow that person to come back later, paying you what you are worth. Okay. As always, guys, if you love this episode, please like it, share it, subscribe, share it on social media so we can get more people listening to the podcast. I'm so glad to see how far we've come in this podcast and how much you've grown over the past 99 episodes and we're almost 200 next episode. It's going to be a little bit more personal. We're going to be looking at some of the past episodes, things like that. It's very exciting. I'm so excited to dive into that. As always, guys, I wish you the best week ever. Farewell, fellow travelers.