Watch Those 10% Discounts

posted in: Sales | 0

I’ve noticed a trend lately.  Maybe it’s because of the tough economy, but lately everywhere I go in our business, folks are asking for a discount. And being good, customer oriented marketers, we tend to say, “sure”, and give a token discount, say 10% off.  After all, 10% is no big deal, we can afford that, right?

Well, do the math.  Many of us are buying and reselling, and a reseller discount of 20% off is pretty common.  Take an example, a $1000 item, we earn $200 profit.  If we give a 10% discount, that’s $100 off, so that modest 10% off is 50% of our profit!

I chose my words carefully, I said we earn $200 profit. I meant earn!  Consider all we do to bring a product to market.  Most of the products that we sell come from outside of Canada, so we cut a purchase order with our supplier, brought the goods into Canada, (even NAFTA sourced goods have import costs associated with them).  We probably carry some inventory, maybe spare parts.  We pay technical support staff, sales staff, shipping and receiving staff.  We pay for literature and advertising to introduce our customers to new products and technologies.  We really earn that 20%. And just to be nice, we give away half of it.

So what do we do about it?

Lets think about the discount carefully.  Do we really need to offer a discount to get the order? Some customers, especially purchasing people, routinely asks for a discount. And who can blame them, more often than not they get it!

So don’t just automatically give a discount.  Ask some questions. Why do they need a discount? Is the price more than they have budgeted for? Will 10% really make it in budget? If price is really an objection, maybe you have a lower cost solution to offer.  Maybe you can meet the customer’s need with a lower cost solution, and still make 20%.

Are there other things of value that you can offer that will meet the customers need for “a deal”. Does your customer need training, calibration, or an extended warranty.  There are all services where you probably receive a very high margin. Maybe you can offer a really appealing discount on these extras, and still make good money.

If this is a competitive situation, is your customer comparing apples with apples. Find out more about the competitive product. Is your product more expensive because it is better? Know your product and know your competition, and you will always come out ahead. Is your product higher quality? Maybe your product has a better track record for reliability? Or maybe your company has a better track record? Prepare for the price objection in advance, and have your facts down cold.

Know when you can’t lose. Remember, many customers routinely ask for a discount, but they will still buy even if you politely decline. There are lots of reasons why you can’t lose. Maybe you have stock, or better delivery than your competition, and your customer can’t wait. Maybe they have standardized on your brand, and buying a non-standard competitive product would cost more in terms of non-standardization or inconvenience.

In the end, if you are sure that the only way to close the order is to give the discount, you have a decision to make.  Can you live with the much lower margin? And, can you live with the consequences? If you give in on the 10%, your customer will always expect 10%.  Maybe you will be better off in the long run to just walk away form this order.

My prediction. Say no to the token discount, and more often than not you will still get the order.  And the margin you make on the wins will more than make up for the margin you lose on the few orders that you lose.

Can your sales group use some coaching on overcoming price objections? Give us a call for a free needs analysis.