Compete on Value not Price

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.

As Winston Said, 'Failing to Plan is Planning to Fail'

In my adult career prior to Business Coaching, I have only known the experience of having a plan and in a paradoxical twist understood fully that no plan survives contact with the enemy. In today's business context that certainly relates to the customer; 'no plan survives contact with the customer'.  That said without  plan you'll be running blind, reactive and unsure where you're going. With a plan and more importantly an 'end state' or 'intent' you achieve focused drive with knowledge of what you are doing and why. Planning focuses the mind and helps maintain discipline.

Here's my top tips on why planning forms a crucial element to getting started in business and remaining on course throughout.

1. The 'higher commander's intent'. When you first experienced that entrepreneurial drive to break away from a job and become your own boss; the business owner, you had a vision. That vision was the embryonic view of the future of your business. Knowing where you wanted to go the next question how you were going to get there, and communicating that journey to your team, bank manager or customers. Articulating the vision and forming the plan gives the focus and impetus to follow a course of action towards the success. The intent or the bosses intent is a written plan which tunes all parties into activities and action with a focus on achieving the intent.
2. By virtue of having a written plan you will have a series of milestones leading to the intent, to the vision. Essentially being able to chip away every day at the milestones will really highlight the progress step by step. A record of the journey and progress.
3. Focus on purpose. The actual process of writing and articulating your business plan will ensure you remain focused on the fundamentals, the lifeblood of the business. 

• The financial targets.
• Identify and focus on the target market with clear market research.
• Remain clear on the service or product for the customers. Details on the various aspects of customer engagement, managing their expectations.
• What is the marketing strategy, just how you are going to create the customer base.
• What the competition are doing.
4.  What if? A detailed business plan will enable strategies to be formulated taking into account various outcomes based on cause and effect. Having identified various potential outcomes will offer a series of solution and planning decisions to be made on the most probable course of action and have contingency in place. This increases the likelihood of achieving certain results and what actions need to be taken. 
5. The business plan forms the narrative for the cashflow forecast (finances in general), telling the story in numbers and supporting in words, it is afterall all about the numbers. A plan will also highlight the probability of success, show potentially when the return on investment will occur and what your targets are.  

Here's the important paradox in having any plan, they change. Having gone through the planning process will give you a great resilience and active response to the plan changing. Essentially you'll have a course of action in mind, likely to have worked through the potential of change and have contingency, being prepared. Arguably having the intent, the medium and long term vision in mind will allow you, the team and those who are invested in the business plan the dexterity to apply themselves in a manner to keep the end in sight.

Starting and running a business requires vision, a purpose and belief that you can succeed. Having a written plan with the vision in mind will increase the likelihood of success. See also my previous bloggs on why planning is so important.