Offering Discounts Without Hurting Margins

How Contractors Can Offer Discounts Without Sacrificing Profits

by Devon Osborne

Read it to me! Click the video below.

 

Discounts can be a double-edged sword. They’re often the go-to strategy for home service businesses looking to attract new customers, but if not done carefully, they can cut into your margins faster than you’d expect. As a contractor, finding that balance between offering a compelling discount and still maintaining profitability can feel like trying to walk a tightrope. How do you get more customers in the door without eroding your hard-earned revenue?

 

The Discount Trap

Many contractors fall into the trap of thinking that volume will make up for steep discounts. However, this approach often leads to trouble. Discount-focused customers typically aren't loyal—they're on the hunt for the best deal and may not come back for repeat business. For example, studies show that nearly 50% of customers drawn in by discounts will not return for full-price services .

J.C. Penney, one of America’s largest retail chains, once tried to eliminate discounts, believing they would focus on providing everyday low prices. But after customers stopped flocking to their stores, the company reinstated discounts—illustrating how powerful discounts are but also how risky they can be when mishandled.

 

A Smarter Approach to Discounts

Offering discounts doesn’t mean giving away your profits. When used strategically, discounts can draw in new customers and increase loyalty. Here’s how you can offer discounts without hurting your margins:

• Bundle Services for Greater Value: Rather than slashing prices on a single service, bundle two or more services together. For example, a painter could offer a 10% discount when clients book both interior and exterior painting jobs. This boosts the total transaction value while maintaining healthy margins. According to Harvard Business Review, customers are more likely to choose bundles when they perceive a higher overall value.

• Seasonal Discounts During Slow Periods: Instead of offering discounts year-round, focus them on your slow seasons. For example, an irrigation company could offer a discount on winterization services during the fall, a typically slower time for irrigation companies. This keeps the business busy without undercutting profits during peak seasons. Home service industries see significant seasonal shifts in demand, making targeted discounts effective.

• Loyalty Programs: A study found that a 5% increase in customer retention can lead to a profit increase of between 25% and 95%. Consider rewarding your long-term clients with exclusive discounts or a loyalty program where they can earn points toward future services. This method builds trust and keeps clients coming back, all while preserving margins.

• Use Time-Sensitive Offers: Create urgency by offering discounts for a limited time. This technique not only attracts new customers but also motivates them to act quickly. A cleaning company, for example, might offer a 15% discount to first-time clients if they book within 48 hours of a quote. According to Psychological Science, urgency and scarcity can boost customer motivation and conversion rates.

 

The Right Kind of Customer

Remember, your goal isn’t just to fill up your schedule. It’s to attract the type of customer who will bring long-term value to your business. By being selective about your discounts, you can draw in clients who understand the value of your work and are willing to pay for it in the future.

Take Lucy’s Landscaping as an example. They experimented with a referral program where existing customers could refer new clients and both would receive a 10% discount on their next service. Not only did this strategy bring in high-quality leads, but those referred clients were already predisposed to trust the business and were more likely to become repeat customers. The result? Lucy’s Landscaping saw their client retention increase by 25% in just one year.

 

Protect Your Margins with Data

Discounts are most effective when they’re backed by data. Take time to analyze which services give you the most room to offer discounts without hurting margins. This means understanding your cost per service, operational overhead, and the lifetime value of your customers.

For instance, if you’re a plumber and know that your most profitable service is emergency repairs, you could offer a slight discount for new clients but keep your margins high for follow-up services like drain cleaning or regular maintenance. By strategically positioning your discounts, you’re ensuring that each new customer has the potential to turn into a long-term revenue stream.

 

Be Strategic

Don’t fall into the trap of offering blanket discounts that hurt your business more than they help. Instead:

• Focus on long-term customer value, not just short-term volume.
• Offer discounts that align with your goals, like loyalty or bundled services.
• Use data to protect your margins while still giving customers a reason to choose you.

By adopting a more strategic approach to discounts, you can boost your business without undermining profitability.