Great sales people are amazingly persuasive, focused and goal driven. But sometimes sales people use the power of discounts to clinch the sale. Do you have one of those salespeople in your team? One who thinks that a discount is the easiest, way to make a sale? Of course, they may be right, but what about the profit they’re giving away?
If your product has a profit margin of 30% and you give a 10% discount to complete on the sale, that equals a loss of one-third (33.333%) of the available profit!
During a seminar recently a high powered buyer of a company gave an interesting statement:
“My job is easy. I just let the salesperson make a full sales pitch. I ask questions and listen to their explanations. When they’re finished, I simply say
“I’d like to place an order but your prices are too high…’ and I then simply sit there and enjoy myself.
It is entertaining to watch a once-confident salesperson suddenly lost for words.They may repeat the benefits and features of the products, but most of them simply give me a lower price. Whatever new price is offered, I usually respond by saying,
“You’ll have to do better than that!”
And more often than not, they do…I get lower prices by just sitting there, enjoying the game!”
If you are selling, or have others selling for you, you must protect your price and your margins. Teach your people not to hesitate or stutter when a buyer insists on a lower price. Start negotiating! Start using tactics to hold firm on your prices. Sell value…perceived and real
Here’s Why:
Suppose your company sells a product with a price of £100 per unit. Your net cost is £70. That means that the net profit would be £30. If ten are sold at the full price, the net profit for your company will be £300.
Compare this with selling ten but this time at a discount of ten percent. The total selling price for ten is then £900. The net cost remains at £700. The net profit has decreased to only £200 compared to the original transaction £300 where no discount was given.
If your company continued to sell at ten percent discount, then you’d have to sell 15 to achieve a net profit of £300. Here’s how it looks:
Sales Discount Gross Sales Net cost Profit
10 with 0% discount – £1000 in – £700 cost – £300 profit
10 with 10% discount – £900 in – £700 cost – £200 profit
15 with 10% discount – £1350 in – £1050 cost – £300 profit
What are the lessons to be learned?
A ten percent discount means your company must sell 50% more units (15 instead of 10) to earn the same profit.
A ten percent discount means someone has to work 50% harder to earn the company the same money.
By not giving discounts, in essence the company can “work” 50% less and earn the same income.
In spite of this, you might still think, “But, if I don’t give discounts, I’ll lose sales! It’s an industry norm to give them…everyone does. If I don’t give discounts, they’ll go to the competition!”
And you may be right, of course.
You may lose a few deals if you don’t give discounts…but the good news is you can afford to…and still make the same or more profit….
Food for thought?
