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  • Writer's pictureSBDC @ JCC

Family & Friend Discounts?

When to give them a break and when to say "No".

Several years ago, when I partnered in my small business, one of the frequent questions we dealt with was…”So, do I get the family/friend discount?” To be honest, I didn’t even know that we offered a family/friend discount. Evidently, though, we were supposed to offer one to those we are close to. The truth of the matter is that when you open a small business, you aren’t doing so as a means to give people a break. You’re doing so as a means to generate a livelihood. While many friends or family members may ask for a break with tongue planted in cheek, there are several who seriously think they should get a discount because of your relationship.

So, what do you do when family, friends and even casual acquaintances ask for discounts or freebies? If you set the precedent of offering your goods and/or services free or heavily discounted, you may; 1) damage the business, financially, and 2) gradually develop resentful feelings toward the people you love. Conversely, you don't want those you are closest to to think that you are selfish or ungrateful, particularly if they supported your choice to become an entrepreneur.

We decided that it was important for our friends and family to understand what we were trying to do with our shop and why we couldn’t just give things away. To that end, we agreed that only under certain circumstances with certain items would we consider offering discounts to our friends and family. Our shop offered us a greater degree of latitude given that much of our stock (memorabilia, individual sports cards, and back issue comic books) has flexibility in pricing. However, we agreed that our fixed price items (sports card packs/boxes, new comic books, clothing, hats, etc…) couldn’t be discounted. We decided that on our flexible priced items, we could afford to offer a break but on the items with specific retail values, unless we were offering a specific storewide promotion, we would not discount.

While that technique worked for us, it may not for you. So, how can you say no without hurting your relationships? Here are some thoughts and ideas to help.

Running a business costs money. When you give products or services away for free or at a discount, you effectively remove revenue from your operating funds. It’s ok to show your family and friends what it might cost you in order to give them a break. When they understand the impact on your bottom line that freebies have, they should understand why it’s not fair for them to expect you to give up discounts. For example, let’s say you run a landscaping business and your neighbor asks you to mow his lawn for free. Show him the cost to mow a lawn his size and how doing so for him costs you so much per year. This allows you to show him that by doing him a favor, what you’re really doing is giving away the equivalent of $X worth of service annually.

So, you’ve decided you want to give some kind of a deal? You can’t just give things away all willy-nilly. Decide to WHOM you will offer a discount. Who really falls under the category of friends and family? Are you going to give a discount to the person you’ve known all of your life or do you define a friend as someone that once liked one of your Tweets? Knowing the people that you are willing to give a break to helps eliminate confusion for not only you but your employees as well. Set these guidelines and explain them to your staff, family and friends. We always made it a policy that only management could give the discount if we weren’t running a store promotional sale.

We had some customers that regularly spent a significant amount of money with us. When we realized that, again due to the nature of our business, we’d have people who would consistently spend a great deal with us, we also realized that setting a preferred customer discount would be a good idea. What we came up with was a dollar value scale with a maximum of 15% discount available to customers who spent so much on a monthly basis with us. This “rewards program” was very successful for us as it encouraged customers to place regular orders with us, knowing that depending on what their monthly order would cost, they would receive a specific discount.

Our business was also unique in that not all of our transactions were monetary. We’d have customers come in that would bring memorabilia or sports cards to trade. We had family members and friends that would also bring things in that they were willing to trade for equal value in products. My partner and I would look over what was brought in, discuss what the value range was, based on the items, and offer an amount in trade that we hoped was fair. More often than not, we’d strike a deal and pick up something new that we believed would sell, while opening up space by trading items that may have been on the shelves or in the display cases for a while.

Of course, the last option is to just say “NO.” Everybody expects to be paid for their time and work. Those friends and family wouldn’t expect to get up at 5am and spend a day at their jobs without receiving some form of compensation. Neither should you. Family and friends shouldn’t pressure you or make you feel obligated to give them discounts or freebies that your business simply cannot afford. Realize though that when asked, you should know in advance how you are going to respond. When you insist on being paid for your work, you show that you know what your time and effort is worth and that you wouldn’t expect them to undervalue themselves for your benefit. One thing I’ve learned is that the moment you offer something free, the recipient although grateful, tends to devalue that item or service almost immediately and take it for granted.

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