If you’re a seller of services, you’ve probably felt tempted to discount your services at some point. Whether you’re a creative or in professional services, it happens to all of us during our careers.
I’ve gotta admit, even I’ve had this thought. It’s hard to avoid during this time of economic uncertainty with the pressure of trying to maintain and grow a business during the COVID-19.
But no matter how much you want to, you must not panic and lower your prices. The thing is, discounting doesn’t just hurt your income, it hurts your brand and your industry too.
Here are the top four reasons why you shouldn’t discount your services.
1. Wealth haemorrhaging
There’s a simple rule of thumb to follow when running a service business. Your costs should be split up into three somewhat equal containers: wages, variable costs, and fixed costs.
Wages includes all remuneration paid to directors, employees, and contractors.
Variable costs are any expenses that increase as you generate more revenue (think merchant fees, software subscriptions, or client travel).
Fixed costs remain constant with your revenue (things like rent).
The bottom line is if you’re delivering the same services but giving a discount, your revenue will drop but your variable and fixed costs will stay the same for that level of activity in your business.
This means that first your profits will take a hit and then your
director’s wages will take a hit which will reduce the amount of wealth
created for the owners. The reality is that while discounting services
might relieve short-term financial stress, it makes it harder to get
back to your normal prices and may make it more difficult to pay
yourself a fair wage in the long-term.
2. Setting a precedent
Clients who ask for a discount once are likely to expect a discount next time. And clients who threaten to shop around will always have FOMO.
Discounting your services sets a bad precedent and frames your discussions with clients around prices instead of value.
3. Devaluing your industry
Professional services are somewhat shielded from this problem because professional bodies help to maintain set prices. In the creative services industry, however, the devaluation problem is rampant.
Stock logos and templated websites are sold by the dozen on sites like Fiverr and it creates an awkward dynamic for creatives with potential clients. Why should a client pay more for your services when they can get it cheaper elsewhere? What are they getting for the extra expense? Creatives who have racked up years of experience and pour time and effort hand crafting brands for their clients are forced to justify their (often reasonable) prices and go to extra lengths to educate potential clients.
The best way to answer this question is with a meme:
4. Protecting your enthusiasm
A great tip from Chris Do, which I decided to steal, is that you should price your client engagements in a way that allows you to “protect your enthusiasm”.
What this means is that you shouldn’t charge lower than what it takes to keep you fully motivated and enthusiastic throughout the life of the project.
Getting burned out at the end of a project because you realised you’ve over-committed and under-charged isn’t the client’s fault, it’s your fault.
Have you ever lowered your prices and regretted it? If you have any tips from pricing your services in your industry, feel free to leave a comment below.