What a discount really costs you
A discount comes off your price, but your costs stay the same, so it all comes out of your profit. On a job with a 30% margin, a 10% discount wipes out a third of the profit. To earn the same total profit at the lower price, you would need to do about 50% more work. Cutting price is rarely the cheap way to win a job.
Most tradespeople know a discount costs something. Few know how much. It feels like a small favour, a bit off here for a regular or a friend. In practice it is one of the most expensive things you can do to a job.
The reason is simple. Your profit is the thin slice left after materials, wages, the van and overheads. A discount does not take 10% off that slice. It takes 10% of the whole price, out of the slice.
Is a 10% discount really 10% off my profit?
No, and this is the part that catches people out. The discount is a percentage of the price. Your profit is a much smaller number, so the same amount is a much bigger share of it. The lower your margin, the worse it gets.
What does it look like on a real job?
Take an illustration: a $1,000 job where you keep a 30% margin. The job costs you $700 to do, so you make $300. A customer asks for 10% off.
| Normal price | $1,000 |
| Cost of doing the job | $700 |
| Profit at the normal price | $300 |
| Price with 10% off | $900 |
| Cost of doing the job (unchanged) | $700 |
| Profit with the discount | $200 |
| Profit lost ($100 ÷ $300) | 33% |
You gave away $100, which sounds like 10%, and lost a third of your profit on the job. The material, the hours and the drive were all identical.
How much extra work do I need to win it back?
This is the sum that changes minds. At $200 a job you need 1.5 jobs to earn the $300 you used to make from one. That is 50% more work to end up exactly where you started: more quoting, more driving, more days on site.
The formula is the discount divided by your margin minus the discount. Here that is 10 ÷ (30 − 10), which is 0.5, or 50% more. At a 5% discount it is 20% more work. At 20% it is a full 100%, double the work for the same money. If the discount matches your margin, the job earns nothing, and past that you pay to work. It can never be won back.
Not sure what your margin is? Quote & Profit Calculator builds it up job by job, and the thinking is in how to quote a job so you actually make money. If you want a refresher on the term, see this general explanation of profit margin.
Why do mates rates and price matching hurt so much?
Mates rates are a discount with no end date. The friend tells another friend, and soon the cheap price is the price. It also teaches people that your quote is a starting point to haggle from, and the next customer asks too.
Price matching hands your pricing to your cheapest competitor. They may have a different van, no staff, no insurance to pay or a different idea of quality. You match their price and keep your costs. Worse, the customer now chooses on price alone, which is the one thing you cannot win on forever.
Neither is wrong once in a while, for a good reason, with your eyes open. The trouble is when they become the habit.
What can I offer instead of a lower price?
If someone needs a reason to say yes, give them something that costs you little or nothing:
- A smaller scope. Take out the optional extras, or split the job into stages. The price drops because the work does, and your margin stays intact.
- Payment terms. A staged payment plan, or a small saving for paying on completion, can win a job without cutting what the work earns. Keep late payment in mind, as it has a cost of its own, covered in what a late payment really costs you.
- Off-peak slots. If you have a quiet Tuesday, a small reduction for flexibility fills a gap that would earn nothing. Keep it to genuinely empty days, not your busy ones.
- Something other than money. A longer guarantee, a quicker start or a tidy-up included can matter more to a customer than a few percent.
The test for any of these is the same: would you still be happy with the job once you have done the sum?
Should I put my prices up instead?
Often the opposite problem is the real one. If you are discounting because you feel too expensive, check whether you have kept pace with your costs first. The same maths works in your favour: a small price rise lifts profit far more than its size suggests. The Price Increase Calculator shows how much, and have you actually checked your prices lately? covers when to do it. To see how many jobs you need before you are earning anything at all, use the Break-Even Calculator and read how many jobs you actually need to break even.
Frequently asked questions
Is a 10% discount really 10% off my profit?
How much extra work do I need to win to make up for a discount?
Should I ever give a discount?
What if a customer says a competitor is cheaper?
What if my discount is bigger than my margin?
The takeaway
A discount is not a small favour, it is a cut to the part of the price that pays you. Know your margin, work out what the discount costs before you say yes, and offer scope, terms or timing before you offer a lower price.