Wednesday

Contractors - Do You Offer Discounts?

Every day, my porch is littered with flyers from remodeling companies and other service pros. Most of them try to entice me with a major discount to get me to try their services. I'll see $500 off on a new roof or $1000 off a kitchen remodel. I might even see a Call This Week and Get $50 Off Our Plumbing Service!

The big problem with discounts like this is that it sets up an expectation. An expectation of continually low prices. A coupon or discount might work occasionally to get clients to try out your company. But the issue starts when they come back to you for more work or refer you to friends and family.

Those discounts could mean clients will always expect to get good deals from you which can really hurt those margins. If prices go back up or the next job doesn't include a deal, they could go elsewhere and use someone else's coupon.

Another side effect of offering a dollar discount helps perpetuate the problem. The Journal of Marketing did a side-by-side study of offering $100 off versus offering 20 percent off and found that the percentage discount lowered clients' expectations of future discounts. Both types worked to get people to purchase, but the percentage discount was less easily remembered.

In other words, you give a 10% discount off the total bill, instead of lopping off $1000, the client will not return to your company expecting better prices than your competitor.

Equally interesting was that the more odd the percentage, the less it worked. A 34% or a 22% discount was less effective than a 20% discount. You want to make potential clients work to figure out the amount off, but not make it impossible to do in their heads.

The lesson is - if you offer discounts, go with a percentage instead of a dollar amount and get a better return when clients come back and offer referrals.

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