If I meet a pleasant person or someone who is interested in one of my businesses, I always give him a free copy of my e-book. The book took me quite some time to write, but now that it’s finished, it doesn’t cost me a penny – and its value is high.
Let’s say that after you’ve read my book, your company’s earnings go up by $10,000. That’s added value for you. If you had paid $9 for the e-book, you would certainly have made a good deal: $10,000 – $9 = $9,991! If everyone knew they could earn that much just by reading the book, I would probably be a billionaire by selling books by now.
If your business sells software, it costs you nothing to throw in an extra module or feature, or a free month. This is where this idea of value versus cost comes into play. Use it in your marketing to give customers more than they expect, and lock in their loyalty.
Don’t give discounts that turn your bottom line red.
It’s a good rule of thumb never to give a cash discount. This is like throwing money out the window, and the amount you give away comes directly out of your profits. It’s smarter to give your customers something extra that has no direct cost to you.
Here are four ways to offer extra value, starting with the best and smartest:
- The best way to give a “discount” is to provide something for free that has high value to the recipient, but doesn’t cost you anything at all.
- Provide something extra that gives the recipient good value, but costs you very little.
- Provide something that gives the recipient a small or
moderate added value, and doesn’t cost very much.
- Last, and least interesting, just offer a price cut.
The diagram below illustrates value and cash discount.
The more of a discount or “extra” costs you to deliver to the customer, the less your net profit. If that discount or extra is of little value to the customer, you both lose. This is where you don’t want to be.
On the other hand, if you can provide your customer high value at no cost to you, you both gain the most!
If you want to give a price discount, it’s better to offer it in a form such as a 2X longer subscription at the regular sub- scription price, than it is to charge 50% less. Or perhaps two products for the price of one (assuming it’s the sort of product with no real overhead per item). You don’t want to fall into a trap of de-valuing your product in the eyes of your customers.