When you start telling your friends and family about your new small business, at least a few of them are bound to ask — perhaps only partly in jest — about a "family discount" on your products.
What's a small business owner to do when family, friends and even casual acquaintances ask for discounts or freebies? If you offer your services or products for free or for a deep discount, you may hurt yourself financially, and over time, you may even begin to resent people you love. On the other hand, you don't want the people in your social circle to think that you are selfish or ungrateful, especially if they have supported your entrepreneurial endeavors.
Though there is no one-size-fits-all solution that will work for all entrepreneurs or in every situation, there are lessons to be learned from fellow business owners who have faced the same dilemma. Here's how to turn a potentially uncomfortable conversation into a transparent and productive transaction that honors some of your most valued relationships.
Explain what you do
Sometimes family and friends may not understand your business, and as a result, they may undervalue your service or overestimate your profit. It’s worth taking the time to explain the costs involved in running your company, including salaries, supplies, rent and other variables.
"Usually when you do some back-of-the-envelope math with your friend or family member and explain what it costs to deliver that service or product, they back off quickly," said Bryan Clayton, CEO of Green Pal, a platform that connects lawn care professionals with potential clients.
Clayton recounted how a relative asked him to mow his lawn for free, since he assumed mowing one more lawn for a company that took care of thousands would not create much additional work or add to expenses.
"He did not realize that our profit margin is less than 3 percent," said Clayton. "When I explained that mowing his lawn for free would cost my company $1,700 a year out of pocket, he completely understood and did not expect us to just give him that service."
Define your relationships
If you are willing to offer discounts or freebies to family and friends, you must first clearly define who falls into these categories. Technology has connected us to tons of people with whom we really don't have a personal relationship. If someone likes your Facebook post or is married to your cousin's best friend, is that enough to qualify that person for your business perks? Start by setting some guidelines that make sense to you and sharing them with potential customers.
Lisa Chu, owner of Black N Bianco Kids Apparel, learned the hard way that it's important to define who qualifies for a discount when relatives began to use her business to "hook up" their extended family and friends. In response, Chu established firm boundaries for relatives and friends of family with whom she did not have a close relationship.
"I was willing to offer them a small discount, but no free items," Chu explained. "For my very close friends and family, I created a special package of products just for them, [with] hard-to-sell items or low-profit-margin products."
Offer a preset discount or deal
Decide what sort of freebies or sliding scale works for you, and adhere to your policy consistently and unapologetically. Brett Farmiloe, managing partner of the digital marketing agency Markitors, has developed five freebie websites that he is willing to build for family and friends. However, since he does not charge for this work, he only takes on one of these projects a month.
"I recently told one family member that I had three websites to do before hers [and] would not be able to build it for another four months," said Farmiloe. "By clearly communicating my workload and my timeline, I am able to manage expectations without causing any rifts in my relationships."
It sometimes makes sense to give away products or services for free or at discounted rates, especially if it can help you promote your brand. For example, gifting items or services to connections with a large social media following, or donating to a nonprofit or community event, may help you attract new customers. But make sure you can afford the expense before giving away the store.
Jenny Dorsey, a New York City culinary consultant who runs the underground restaurant I Forgot It's Wednesday, offers a discounted rate to close friends, important industry contacts and members of the press, but stops short of offering freebies.
"My dinners only seat 12 and there's a long wait list for each, so giving away a 100 percent free seat does not make sense financially," said Dorsey. "In a food business, margins are small, so it's important to only offer discounts to people who you either really care about or [who] can also offer you something substantial in return for that 'opportunity' cost."
Set aside time a specific time for personal projects
Decide on an amount of time you are comfortable allocating to project requests from friends and family. Once you establish a time frame, communicate this information to friends who approach you about working on a project for them.
Brandon Howard, owner of the web design company All My Web Needs, offers services at cost to friends and relatives, but he is quick to explain to them that their projects are continuously moved to the back of the priority list as regular, paying jobs come into the office.
According to Howard, "from a business standpoint, it works well because we aren't losing out on regular work. From a relationship standpoint, it also works well because I'm doing them a favor with contingencies that are easy for them to understand."
If a relative or friend has a product or service that can benefit you, offer to trade your expertise for theirs. For example, business coach Tom Ingrassia of The MotivAct Group relies on the time-tested barter system when it comes to mentoring his best friend.
"I provide him with regular, ongoing business advice, serving as a sounding board and accountability buddy for him," said Ingrassia. "In return, he coaches me in my running routine. It is a win-win."
It is reasonable to expect to get paid for your time and work. You shouldn't feel pressured to provide discounts or gifts your business cannot afford. You are in no way obligated to take on every project or fulfill every demand, but prepare in advance what you plan to say when such requests come your way. Sometimes, insisting that people pay you for your work, no matter how close they may be to you, helps them — and you — know your worth.
"Offering freebies and discounts not only costs the owner money, but often cheapens the buyer's appreciation for the product and service," said Lior Krolewicz, founder and CEO of Yael Consulting. "It may feel bad not giving in to these kinds of requests, but in the long term, respecting your business and yourself is the best strategy."