It’s a common, almost standard tactic of buyers to ask what discount you can give them. And in the minds of many war weary sales people or entrepreneurs over the past few years any sale is a win, and wins don’t come along that often! And if you are dealing with a purchasing department or tenders office, the reason they exist is to get the best price from you and they have a toolkit full of methods to get you to sell at a price point which will reduce your profit.
So what can be done to remedy this problem? How do you resist the demands of a client to reduce your price using a scientific approach rather than an emotional one? Perhaps the best way to understand this is to look at how much extra you need to sell to maintain your Gross Profit at its original rate.
In order to understand the true cost of discounting take a look at the chart below to analyse the discount you are proposing to offer a client, against your gross profit margin.
For example if I was offering a client a 10% discount and I had a 30% gross profit on that sale, then I must sell 50% more in order to maintain the total Gross Profit.
How many times have you seen sales reps almost instantly cave in to even a small discount request such as this, thinking that this would have very little effect?
So firstly you need to limit or remove discounting if possible from your culture. An easy way to do this is to ask all sales reps to get ‘sign off’ from you for a discount to a customer. I have seen this simple requirement reduce discounting amongst sales reps by a massive 85%.
Secondly if you can’t get away from discounting completely given your industry then educate sales people to understand the real damage that their discounting is doing to the business.
Thirdly train your sales people. As the great Jack Daly says most sales people simply ‘show up and throw up’. They have no planned structure to their interactions with clients and do not follow a sales process. They talk as much as possible and expect a client to purchase when they stop talking.
By understanding the real cost of discounting when you make a sale, and what that does to your financials, you should be able reduce this easily avoidable erosion in profit.
See the video blog outlining how discounting damages your profit below
See the Sales Training course below
Brad Giles works with CEO’s and management teams to develop and execute a winning strategy for their industry.