Discounts versus Profits
Do
you have (or have you ever had) one of those salespeople who thinks that giving
a discount is the easiest, quickest way to make a sale? Of course, they may be right,
but what about the profit (your profit) they’re giving away?
If
your product has a profit margin of 30% and your salespeople give a 10%
discount to make the sale, you’re losing a massive, one-third (33.333%) of the
available profit!
During
a seminar for the buyers of a large retail group with branches all over the
country, an attendee shared the following tactic: “My job is easy. I just let the salesperson make a full sales
presentation. I ask questions and listen
to their explanations. When they’re
finished, I simply say, ‘I’d like to place an order with you, but your prices
are too high...’ and I then simply sit there and enjoy myself, because the
once-confident salesperson suddenly doesn’t know what to do or say next. With much less conviction and enthusiasm,
they may repeat the benefits and features of their products, but most of them
get in to see me by giving me a lower price in the first place. 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…in
fact, do better than that! I get lower
prices by just sitting there, enjoying the game!” The buyer isn’t stupid. But you don’t have to lose.
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:
Do
you think it’s possible to work 50% less and earn the same income from
selling? You bet it is! Here’s how:
Suppose
your company sells pumps, with selling price of £10,000 per unit. Assume that your net cost per pump is £7,000. That means that the net profit on each pump
would be £3,000. If ten pumps are sold
at the full price, the net profit for your company will be £30,000. Compare this with again selling ten pumps,
but this time at a discount of ten percent. The total selling price for ten pumps is then
£90,000. The net cost for ten pumps
remains at £70,000. The net profit has
decreased to only £20,000 compared to the original transaction £30,000 where no
discount was given.
If
your company continued to sell at ten percent discount, then you’d have to sell
15 pumps to achieve a net profit of £30,000.
Here’s how it looks:
Sales Discount Gross Sales Net cost Profit
10 0% £100,000 £70,000 £30,000
10 10% £90,000 £70,000 £20,000
15 10% £135,000 £105,000 £30,000
What
are the lessons to be learned from this example?
A
ten percent discount means your company must sell 50% more units (15 instead of
10) to earn the same profit pounds.
A
ten percent discount means someone has to work 50% harder to earn the company
the same.
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.
