This topic – discounts – is one that was beaten into my head as a young sales rep. Selling Power offers the article How Much Is that Discount Really Costing You? that cuts straight to the core of discounting.
Discounting is a real problem among salespeople and especially one type of salesperson – the type that is commmissioned on revenue and not profit margin. A straight percentage of the sales revenue is an invitation to discount. The author of the article goes right after this problem:
2. Update the compensation plan to maximize profits instead of volume. Switch the plan to a margin basis, or at least a blend of volume and margin, to counter the discounters on your team.
That is the first key to stopping discounts. The second is found in the author’s next point:
3. Require that all daily transactions pass the average margin test and contribute to the bottom line. Manage by exception in this area, cautions Foster. Require that any transaction priced below the budgeted company margin must be approved and signed off. Then have a margin catch-up plan to recover those losses.
We used to call them a waiver – sheepishly wandering into the sales manager’s office and explaining why it was so important to discount the price. I worked under a system like this and I learned more about maintaining margins than any other job I had.
There is another piece to this puzzle. Prospects normally fish for a discount, but rarely does it cost you the sale. If you have properly qualified the opportunity and placed your value proposition in play, you will get the deal. If your solution to the prospect’s problem is indistinguishable from your competition, lowest price will win. If that is the case, shame on the salesperson for getting deep into a bad deal.