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How Builders Decide Whether to Use Customer Incentives

Are special promotions and discounts right for your General Contracting firm?

Houzz Pro

MARCH 10, 2024

Sooner or later, as a general contractor, the topic of offering client discounts is certain to arise.

How you approach this question depends on the particular needs and circumstances of your firm. Some builders shy away from discounting their work for fear of compromising already tight profit margins, and devaluing the services and expertise of their company which they have worked diligently to build. 

Others, however, do provide percentage reductions off the project price, or special promotions as a strategy for growing their business.

Can offering some types of discounts make your firm more competitive and sustainable over the long run? In this article, we explore common types of client discounts, how to decide if leveraging them is right for your business, and offer advice from other pros on how they approach their discount strategy to help you decide what approach and pricing structure works best for your general contracting business. 

The Pros & Cons of Offering Discounts 

Making Strategic Discount Decisions

Offering discounts on certain items and at specific times can be an effective strategy to keep the sales pipeline flowing and bringing in new revenue streams for your company.

In a tighter housing market, offering some type of a reduction in the project cost can be the incentive that pushes clients off the fence, persuading them to go forward with a home improvement project they have been contemplating. These nudges can persuade homeowners to pursue the work now instead of waiting out what they see as an uncertain economy.

That could mean offering across the board subtotal discounts, limited time promotions on particular room remodeling such as a bathroom or running specials during a holiday period. Scheduling promotions to coincide with a slow month can sometimes outweigh the downside of cutting into your profit margin. 

Bring in New Clients

Another approach to use discounts as a strategy to increase your market share is to offer discounts to first-time clients. The risk some home pros see in this approach is that offering reductions at the start could become a slippery slope in which clients will expect even more of them deeper into the project work. However, others cite the benefits. They bet on the fact that once in the door, the client will see the value the firm offers and appreciate that the services and expertise they are paying for are worth the price.

Passing on discounts to clients has the advantage of helping contractors provide full transparency of the process. It can also make it less likely that customers will question the budget every step along the way as the project progresses. With Houzz Pro software, if you would like to provide your client with a discount on a line item or the total project cost, you can easily do so. Learn here how to apply subtotal discounts or how to add a negative line item.

Displaying Gratitude

Providing certain discounts to seniors, veterans and other specific groups can earn you respect and open up a clientele list you may not have tapped before.

As a general contractor whose business model uses trade partners, Mike Biestek, founder of Remodeling Right in Rhode Island, says it is challenging to offer discounts unless these partners are on board. However, he does use incentives to thank those who have sacrificed for others. 

He offers a discount on his firm’s on-site consultation services to all veterans and first responders. “Being a veteran myself I believe in rewarding the sacrifice they make for the betterment of others,” says Biestek, who as an infantryman was deployed in Afghanistan in 2010.

Another way to show your gratitude is to reward repeat clients for their loyalty by offering discounts for entrusting your firm again and again to work on their home. 

The Answer May Be “No”

Not every company incorporates reductions into their business plan. Jena Bula, an interior designer whose portfolio includes new builds, is not keen on risking the erosion of their profit margins by passing discounts on to clients that they have worked so diligently to acquire. “We work very hard to create relationships, adhere to purchasing minimums, discover amazing vendors and our hard work and connections are a big part of the reason clients are hiring us,” she says. 

Product markup is part of the business model and strategy of her company Delphinium Design, she says. However, Bula sets limits on that markup to provide her clients a fair and equitable pricing structure. “One thing I do feel strongly about, is that we do not mark products up past MSRP,” she says. “What a client would pay for a product if they were to order themselves – though they can’t order directly from most of the vendors I source from – is what we charge them.” 

Why Customers Ask for Reductions

No home professional likes to have to answer their client’s discount inquiry. It’s an uncomfortable question to respond to, especially if the answer is no and they want to retain the client. It helps when businesses have an existing policy to refer them to, and to show customers that their firm has given thought to what is the most fair and equitable approach to pricing and discounts.

It also helps to consider the many reasons a client might be making the ask.

  1. Bargain Opportunity
  2. Many clients believe prices are inflated and assume there is always wiggle room.They may have been taught to never buy a car for the sticker price.They view successful bargaining as a victory.
  3. Distrust
  4. Related to these assumptions is a concern that they may be taken advantage of. They think that the firm is reaping the benefits of deep discounts in materials, and products, and not sharing them.
  5. Budget Constraints
  6. A customer may truly have tight resources at the moment, but they like your firm’s reputation and your renovation vision for their home. A small discount might mean they can still hire your company to do the job without breaking the bank. 
  7. They Cannot Afford Your Firm
  8. In some cases, the bottom line is that the homeowner simply has luxury tastes, but little means to pay for the work they are seeking. In those cases, even the deepest discounts won’t solve the issue and it is probably best to pass on the work.

Saving the Incentives for Last

General contractors who make it their policy to retain their trade discounts, and limit discounts to ensure that their profit margins allow for reinvestment into their firms, may still decide to offer incentives at the end of the project instead. 

One routine discount in the industry that helps retain a steady revenue stream is to offer percentage reductions for early and upfront payments. Many clients now prefer to pay through a safe, online method instead of using paper checks and money orders. Combining discounts with safe, easy online payment options is a recipe for getting paid quickly. Here are some pro tips for creating a smooth payment process.

Using happy clients to fill the sales pipeline with new leads is another way incentives can work for builders. Some pros incentivize repeat customers by creating rewards through a referral program.

A Balancing Act

Deciding what types of reductions to offer homeowners and when is a balancing act for every general contracting firm. They must consider profit margins, while also weighing the current and future project load. Developing an incentive strategy that best fits your firm and the type of general contracting services you offer can be an effective tool in your sales tool box.

Learn how Houzz Pro helps general contractors run their firms more effectively and efficiently.

Houzz Pro is the all-in-one tool for marketing, project and client management built specifically for remodeling, build, and design professionals.

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