Tag: Discounts

Earlier this year, I wrote a post about the dangers in giving discounts to your customers. This post has recently been getting lots of traffic - both via search engines and a freelancer forum - that I thought I should discuss some situations where giving discounts is okay.

In my experience, you should generally avoid giving discounts unless you are getting something of value in exchange.

But what merits giving a discount? That depends on your business, your industry, and your personal preferences. One of the best reasons for giving a discount is in exchange for a quicker payment. This is what 2/10 n30 invoices are based off of: Your invoice is due in 30 days, but should you pay us in ten days, we will give you a 2% discount. In this example, having the cash available to you within 10 days is worth the same or more as the 2% cost you are essentially paying.

Another example? If you are in a Software as a Service business for example (or any other business that offers a service on a monthly basis), you want to balance monthly recurring revenue (MRR) with your pre-payments. So you offer a x% discount to your customers who prepay the year upfront. You get cash upfront, and they get a discount (incentive) for doing so.

By offering discounts in exchange for something of value, you are not devaluing your own products and services because you are asking for something in exchange. This is different from the type of discount many small business owners offer where they give the customer a discount just because he/she asked.

If you are a small business owner or entrepreneur, you are likely asked frequently to provide a discount on your rates. This is especially tempting during an economic recession where your sales levels are lower than usual. Although some people will tell you to lower your prices or provide discounts to increase business, I believe doing so actually hurts your business financially and non-financially. Let's examine why.