You are not selling a product. You’re selling a service.
Your goal is not simply to sell more because your most valuable resource (time) is finite.
Product companies want to sell high volume because the cost of production decreases as they sell more units. They can buy parts in bulk, they can negotiate volume discounts with suppliers and they can streamline production.
We can only sleep less. Or exercise less.
This means it’s important to sell our service at the rate that will make us profitable, maintain a professional image and avoid problems that make our business unstable.
Here are the reasons we don’t discount our rates, or have “sales”—from both sides of the coin:
1. Discounts attract the wrong people.
Because we don’t have unlimited time and attention, spending that same time and attention on a client who pays 20 percent less is robbing us of what we could earn in the same time. Our rent doesn’t go down 20 percent when we give a client a discount. All the “savings” come from our profit.
2. Sales teach the right people bad habits.
Who is most likely to purchase a one-year paid-in-full (PIF) membership? The client most likely to stick around for a year anyway. So why discount?
A 20 percent discount for paying up front seems like a great idea in January: All. The. Money! But a discount of 8.5 percent is equivalent to a free month. A 20 percent PIF discount means your best clients—the ones most likely to stick around anyway—are attending for free after Oct. 15.
Worse, it teaches these great people to wait for another sale before signing up again. When you cease the bad habit of “sales,” they don’t think, “Ah well, it was good while it lasted. I was getting a bargain!” Instead, they think, “Now I’m going to pay 20 percent more for the same service.”
Discounts and limited-time sales are a downward spiral. In Two-Brain Business, I wrote that the “sales spiral” would kill Sears and other department stores.
Here’s a 2016 update:
And this is a product company stuck in the “sale! sale! sale!” cycle. You are a service company. That’s even more deadly.
There’s a limit to how many people your gym can train and keep. When you offer discounts, you can’t make it up in volume.
Toy manufacturers and booksellers can offer discounts. They can scale their service to infinity, and their cost of production decreases as they do. You can’t. Your time and attention are finite.
Stop robbing yourself!