Some salespeople naively think that all they lose when they discount a sale is the percentage of the discount. Think again.
It’s amazing how narrow a lot of salespeople think. The last couple of weeks I’ve had some great discussions with other sales leaders and sales managers discussing this topic and how to deal with it.
Too many salespeople think when they discount a sale, the lost profit is only on that sale. A far bigger loss occurs due to the salesperson now allowing the customer to assume a lower price-value relationship than originally expected. This lower perception of value then becomes their new baseline.
With the new baseline, the customer will now think any price higher than what they just paid is a price increase. Since when is charging someone regular price considered a price increase? I hope you’re beginning to see the issue.
Discounting the price once means risking lost profit for an extended period of time. When you start adding up the profit that is going to be lost over an extended period of time, you can see how what can be originally seen as a one-time price cut turns into a huge loss.
Here’s a quick way to look at it:
Selling Price: $100.00 Profit $20.00
Discounted Price: $90.00 Profit $10.00
Discount might be only 10% in price but it turns out to be a 50% decrease in profit!
If the customer normally comes back to buy 10 more times over the next year and the price is not increased, suddenly a $10.00 loss becomes a $100.00 loss!
Now think back to the first sale. What you thought was going to be a $10.00 loss is now equal to giving the first item to the customer for free!
Let me end by saying: “Nothing is so permanent as a one-time discount.” – Mark Hunter
Copyright 2011, Mark Hunter “The Sales Hunter.” Sales Motivation Blog.