When to offer discounts (and when not to)
Discounts are a tool, not a habit. Used strategically, they can close deals, build relationships, or fill slow periods. Used carelessly, they train clients to expect lower prices and erode your perceived value.
Good reasons to discount
- Volume: Client commits to multiple projects or a retainer. Lower acquisition cost justifies lower price.
- Speed: Client pays upfront or faster than standard terms. You get cash flow certainty.
- Portfolio building: Project fills a gap in your portfolio. Value is partly in the work itself.
- Referral source: Client sends significant business your way. Discount is de facto referral fee.
- Slow period: Some revenue is better than no revenue. But do not make it a pattern.
Bad reasons to discount
- Client pushback: "Can you do better?" is not a reason. If your price is fair, defend it.
- Fear of losing the deal: Desperation discounting teaches clients to negotiate harder next time.
- "Just this once": One-time discounts become expected. The exception becomes the rule.
- Matching competitors: Competing on price is a race to the bottom. Compete on value instead.
Alternatives to discounting
When clients push on price, discounting is not your only option. These alternatives preserve your rate while giving clients something they value.
Scope reduction
"I can do it for that budget if we remove X." The price stays fair, just for less work. Client chooses what matters most.
Phased delivery
"We can start with phase one at this budget, then add phase two next quarter." Keeps the relationship while fitting their cash flow.
Payment terms
"Price stays the same, but you can pay 50% now and 50% on delivery." Feels like flexibility without lowering your rate.
Added value
"I can not lower the price, but I will include X at no extra charge." Give something with low cost to you but high perceived value.
Future credit
"No discount on this project, but 10% off your next project if you book within 6 months." Incentivizes repeat business without lowering today's price.
Referral exchange
"If you refer a client who books, I will credit 10% of that project to you." Turns the discount ask into a partnership.
How discounts affect your margins
A discount does not just reduce revenue. It destroys margin disproportionately because your costs stay the same.
The math that matters
If your profit margin is 25% and you give a 10% discount:
- Original: $10,000 revenue, $7,500 cost, $2,500 profit (25% margin)
- After 10% discount: $9,000 revenue, $7,500 cost, $1,500 profit (16.7% margin)
A 10% discount cut your profit by 40%.
Discount impact by margin
| Your margin | 10% discount | Profit reduction |
|---|---|---|
| 50% | 10% | -20% |
| 30% | 10% | -33% |
| 25% | 10% | -40% |
| 20% | 10% | -50% |
| 15% | 10% | -67% |
The lower your margin, the more devastating discounts become. At 15% margin, a 15% discount wipes out your entire profit.
The volume myth
"I will make it up in volume." Usually false. To maintain the same total profit with a 10% discount and 25% margin, you need to increase sales volume by 67%. Can you actually do that?
