A discount for cash: Should you be doing it?
Click on the video to watch it (Runtime 4 minutes).
If you’d rather read the transcript it’s here below.
“Is there a discount for cash?”People ask you that all the time, don’t they? It’s not a comfortable question to get.
You probably won’t be surprised when I tell you that I don’t think you should discount for cash. In fact, if you’ve watched any of my videos, you probably know I don’t really approve of discounting for any reason at all. I don’t think you should discount and I’m going to tell you WHY.
I’m Jon and I’m from Small Fish Business Coaching and I coach trades business owners. I want you to be more profitable or I’m here to help you be more profitable. And part of that is not giving your money away. Don’t give it away unnecessarily.
Let me talk about discounting.
The first reason I don’t want you to give money away is because it’s a really expensive thing to do. Let me show you my little super duper high-tech visual aid.
This is a job $10 000 job.
- Labor and materials are costing you $7 000.
- That’s not unusual for you to get a 30% margin on a job. That’s margin though, on the difference between the price of the job and the cost to you, in terms of labor and materials.
- 70% is not unusual but you’ve also got the overheads of your business and 10% across the board is also not unusual.
So you’ve only got 20% left already. (I hope I’m not labouring the point too much and I’ve shown you this before.)
- Margin is 30%, that’s $3000.
- Your overheads are 10%. That’s another $1000.
- That leaves you $2000 if you then go and give 10% another $1000 away.
- You’re only left with a $1000.
You’re only making 10% overall for all that work, and all that stress and all that risk that you took on doing a $10 000 job. All it takes is one mistake by somebody, or one rainy day and you’ve made no money on the job. So what sounds like a small discount of 10% is not really a small discount. It’s quite a large proportion of what you’re going to make on the job so understand that.
Recommended Reading: Don’t Undervalue Yourself – Stop Discounting!
Discounts are really expensive.
That’s the first reason I don’t like discounting at all. But what I don’t like about discounting for cash is because what they’re really saying is “Don’t pay your tax. Be a bit dishonest, and we’ll all cheat the system a bit and everybody wins”. So what it sets up is you’re a bit dodgy. And if I’m a business customer or consumer customer, what I’ve done there although I’ve got a bit of a cash win, I’ve also got a slightly dodgy builder or tradesman doing some work for me. You’ve set up some distrust here. You’ve told them, “We’re a bit of a liar, we don’t mind telling fibs and maybe I’ll tell fibs to you too”.
I don’t think you should do that. I don’t think you want that in your business. Do you want to be putting it out there that you are happy to do dodgy s**t because they’ll be asking you to do other dodgy s**t? And they’ll be asking you to do things that you might feel less ready to do than not declare some cash income.
So be careful. Do you want a reputation out there for your business to be a bit dodgy or would you rather have a reputation for being a business that does the right thing and is good and honest and straightforward and does a good job? I know which one I would prefer.
How to respond?
- “No.I’m not giving a discount for cash”.
- “No, f**k off!” is probably even better. (But I know most people are a bit reluctant to do that.)
- “No. What are you calling me? A thief?”(Probably, a bit strong too.)
- “No. We declare all our income. I don’t fiddle my tax.”Or…
- “We don’t fiddle our tax, so paying me in cash makes no difference to me. So, no, I don’t give a discount for cash,” is probably a more considered way to say NO.
I hope you get this message. The best response to when somebody asks you for a discount, particularly, for cash is to say an unequivocal, “No, we don’t do that”.