Discount Strategy: When Discounts Build and When They Destroy

The Discount Trap

Every time you offer a discount, you are not just reducing your price — you are reducing your profit by a much larger percentage. If your gross margin is 40% and you discount 10%, you have not lost 10% of your profit. You have lost 25% of it.

Here is the math:

• Job price: $10,000
• COGS: $6,000
• Gross profit at full price: $4,000 (40% margin)
• Price after 10% discount: $9,000
• Gross profit after discount: $3,000 (33% margin)
• Profit reduction: 25%

To make the same gross profit at the discounted price, you need to sell 33% more volume. Most small businesses cannot absorb that kind of increase in workload.

This is why reflexive discounting is so dangerous. It feels like a small concession. The math says otherwise.

When Discounts Make Strategic Sense

Discounts are not always bad. They are a tool. Like any tool, the key is using them deliberately and measuring the result.

1. Volume Discounts

Offering a lower per-unit or per-job price for larger commitments. This works when the additional volume genuinely reduces your cost per unit — less mobilization, bulk material pricing, continuous workflow for your crew.

Example: "A single bathroom remodel is $18,000. Book the master bath and hall bath together, and the total is $32,000." You discount from $36,000 because the second bathroom costs you less — one mobilization, one dumpster, shared material delivery.

2. Prepayment Discounts

A small discount for paying upfront or on a faster payment schedule. This improves cash flow and eliminates collection risk.

Example: "2% discount for payment within 10 days." Net terms of 30 days. This is standard commercial practice and usually worth it.

3. Off-Season Discounts

Reducing prices during your slow season to keep crews working. Idle crews cost money — better to run at a lower margin than no margin.

Example: "15% off exterior painting booked in November through February." You cover your direct costs and overhead allocation, even if profit is thin. Come spring, you are back to full pricing.

4. Strategic Relationship Discounts

Discounting for a client who provides consistent, reliable work, refers other clients, or serves as a reference account.

Example: A property management company sends you 30+ service calls per year. A 10% discount makes sense because they eliminate your marketing cost for that revenue.

5. First-Time Client Discounts

A small introductory discount to win a new client you want to build a long-term relationship with. The discount is an investment in the relationship, not a permanent price reduction.

Example: "10% off your first service call. We want to earn your ongoing business."

When Discounts Destroy

Panic Discounting

You need the job, so you cut the price. This is the most common and most destructive form of discounting. You end up doing the work for little or no margin, setting a low price expectation with the client, and being too busy on bad work to pursue good work.

Negotiation Caving

The client asks for a lower price and you immediately drop. This trains every client to negotiate and tells the market your listed price is not your real price.

Loyalty Discounts That Never End

You gave a loyal client 10% off five years ago and never rescinded it. They are now getting a 10% discount on top of not receiving your subsequent price increases. That "loyal client" might be your least profitable account.

Matching Competitor Prices

A competitor bids lower and you drop your price to match. You have no idea what their cost structure is, whether they are insured, or whether they will be in business next year. Matching their price means you are operating on their economics, not yours.

The Discount Framework

Before offering any discount, answer these questions:

1. What is my gross margin on this job at full price? If it is already thin, you have no room to discount.
2. What do I get in return? Volume, speed of payment, off-season work, a reference? If you get nothing, do not give anything.
3. Is this a one-time concession or a precedent? Every discount creates an expectation. Will this client expect this price next time?
4. What is the true cost of the discount? Calculate the profit impact, not just the revenue impact.
5. Would I rather walk away? Sometimes the right answer is "no thank you" at this price.

Alternatives to Discounting

When a client pushes on price, you have options beyond cutting your rate:

Reduce scope

"I can hit that budget if we use standard fixtures instead of the premium line you selected."

Change terms

"I can offer a 5% discount if you pay 50% upfront and the balance on completion."

Add value instead

"I will include a one-year maintenance visit at no extra charge." This costs you far less than a price cut but feels generous to the client.

Bundle

"That price is firm for the kitchen, but if you add the bathroom, I can package both at a better total."

Walk away

Not every job is worth having. A job at 15% margin ties up your crew and prevents them from working a job at 40% margin. The "discount" you gave the first client actually cost you the profit on the second.

Tracking Discount Impact

If you do discount, track it:

• Total discounts given per month and per quarter
• Average discount percentage
• Gross margin on discounted jobs versus full-price jobs
• Client retention rate for discounted versus full-price clients

Many owners are shocked to discover they are giving away 5%–8% of revenue in discounts they never formally decided to offer. That is not strategy. That is margin leaking out the door.