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The Dangers of Discounting

Posted October 24, 2023 by EnerBank USA

The Dangers of Discounting

Have you found yourself offering discounts to your home improvement customers to close the sale? It’s an easy habit to fall into when the pressure is on from your customers. While this may work in the short term, your business could suffer over time. Here are 5 dangers of discounting that you should keep in mind when you feel the need to offer a discount:

More Work to Break Even

One of the biggest pitfalls to offering discounts is it hurts your bottom line. However, you may not be aware of just how much an impact a discount or two can do. For example, let’s say you have a 30% profit margin, and you give a customer a 10% discount on their job. To make up the lost profits, you now need to close 50% more jobs than you usually would.

Less Cash Flow

The number one factor in your cash flow is your pricing. Messing with it by offering discounts can cut your cash off at the source, leaving you high and dry on the next job. In the long run, this may affect the quality of your work and the materials you have access to.

Negative Impact on Brand

When it comes to pricing, you need to balance the cost and perceived value of your work. Constant discounting may cause consumers to think less of your business. Instead of a discount, try selling on the value of the project as opposed to the price.

Creates Future Expectations

Let’s say you offer a discount to a customer. They LOVE the work you did and recommend you to their friends and family. Now each of those referrals expect a discount because their friend said they got one. Now you have two options. Honor the discount and eat the loss or charge full price and risk losing out on the job altogether.

Potential Price Wars

Chances are your customers are speaking to multiple contractors about their job. If you offer a discount, they may go back to another contractor and said they gave you a discount. Now that contractor is offering an even deeper discount to get the job. Now what? Do you beat the discount or lose the job?

How Can Contractor Financing Save You From the Dangers of Discounting

By offering payment options, you have a tool at your disposal to help you overcome price objections early in the process. Contractor financing allows you to discuss price in the terms of an affordable monthly payment. This applies even if the final bid was higher than they anticipated.

Even customers who may have been planning to pay for their project in cash can benefit from financing. Often, simply because they’re paying in cash, they want a discount. We’ve created a loan specifically for customers like this, our Same-As-Cash loan. This product can be a benefit to your business because customers can still utilize their cash, but do so in a more flexible way, and it protects your margins, helping you to make more money.

Being able to increase your margins on each job is going to help the bottom line of your business and every member of your team.

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