My Cart

Close

The High Costs of Discounting

Posted on July 14 2020

 

It's tough right now. The narrative keeps starting/stopping/flipping upside down. You need sales right now ... any way you can get them. I get it.

Here’s a fantastic business strategy you can put to work right away …

Not only will it guarantee lower profits, it will also make you and your team work harder to just break even than ever before.

What? You mean you’re not interested?

But you’re selling something right now in your business at a discount … right?

If there’s one resolution you should stick to now and forever, it should be “never discount,” because over time you will literally price yourself out of your own business.

Just to illustrate this, I’ve included the following table we continually use to coach owners out of the discount game: 

 

It shows very simply the amount you need to increase your sales to compensate for any price discounting strategy.

For example, if your margin is 40% and you reduce your price by 10%, you would need your sales volume to increase by 33% to maintain your profit.

Is this a winning strategy for any company – especially yours?

Rarely does this work over time, and unless mathematical laws are overturned somewhere, I doubt it will work in the future.

So when it comes to discounting … stop it!

Instead …

  • Learn all of your numbers so you have the knowledge and clarity (which boosts your confidence) to set your prices to allow for great margins … then courageously hold them by developing a very clear and concise value proposition for your customers.
  • Find low-cost or no-cost ways to increase and enhance the overall buying experience – especially if you are in categories or industries that have defaulted to discounting as the conventional way of doing business. In reality, the higher the perception (or reality) of a product or service as a commodity, the better opportunity there is to create both legitimate and perceived points of difference with what you can offer.
  • Train your salespeople to dig deeper to find the true objections for not buying – rather than reflexively react by cutting price. Yes, this may take more training, patience or a new look at your current pricing structure, but the payoff long-term will more than cover the short-term inconvenience.

Whatever you do, think twice about the ramifications of running a “10% off sale.”

Just tear out this chart and post it up in a highly visible place to remind you how much more pressure you’re putting on your numbers, your team and yourself when you play the discount game.

Instead … think in terms of how you can grow your services, how you can create a better customer experience, or how you can simply lop off the bottom 80% of your “C” and “D”-type customers who are only interested in cutting you down on price so you can focus more of your resources, time and energy on the top 20% of “A” and “B”-type customers who drive the success of your business.

Find ways to cater to those customers, and you’ll never need to discount anything again … except the amount you’re currently paying for marketing campaigns that may or may not be working for you.

Why?

Because if you re-position your pricing now … and focus on those who deliver the most profit to your bottom-line, you’ll have the start of a true referral-based business – one that relies on effective word-of-mouth advertising, which just happens to be the least costly and most effective type of marketing you could ever “buy.”