The argument is goes something like this:
Would you rather have a sale at little or no profit or would you rather have no sale at all?
The continuation of the argument is if we can close the sale at little or no profit with this customer just once, we’ll then be able to get more business from them later and at a higher price.
This argument has as much life to it as the question, “Which came first the chicken or the egg?”
My perspective is that rarely, if ever, will a person be able to recover the lost profit from the discounted sale.
More likely than not, the new customer who purchased at a discounted price the first time will end up getting a reduced price any subsequent time they buy.
If a customer cannot be sold at full profit the first time, then what makes you believe you’ll be able to sell them at full price the second time?
Once a customer has received something at a reduced price, they then believe the discounted price is the basis for their price/value relationship. Lost profit is just that — lost.
Discounting your price to close a sale is not a sales strategy and it isn’t a marketing strategy. I call it a lazy strategy, because the entire reason for the discount is because the salesperson hasn’t done their job.
If I discount a price to close a sale, what I’m doing is slashing my profit. There is no way to sugar coat this reality. The amount of the price reduction doesn’t come out of the cost of goods or services; it comes straight out of profit.
An example I like to use to explain profit and reducing a price is this:
Let’s say you have a car with a 20-gallon gas tank. The tank is currently ½ full. You could easily give someone 5 gallons of gas, because you’re a nice person and it would still leave you with 5 gallons. However, if your car gets 20 miles to the gallon and the nearest gas station is 120 miles away, you’re not going to make it.
If you run out of gas before you get to the next gas station, then you’ve got a problem. Think of the profit you make as gas for your car the next time you have a customer asking for a discount. Believe me, thinking of it in these terms will have you far more cautious about discounting a price.
Getting the sale at any price possible just isn’t worth the loss in profit. You need to aim for always selling at full profit. It’s a sales habit worth perfecting.
Copyright 2012, Mark Hunter “The Sales Hunter.” Sales Motivation Blog.