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Should I Discount?

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Cutting sales price

Cutting sales price

Question: Should I discount?

Answer: Probably not

Let me explain and offer an example of the harm that a discount can do to your bottom line.   First of all, I would say that you need to do a better job at creating value for your customer.  If you were making a proposal on a job and you were going to sell a widget at $60 per unit but were asked to discount to get the business do you do it?  The answer is it depends.  One thing to note before I go further; is that the “widget” can be a manufactured product, an item you re-sell as a wholesaler or it can be an hourly rate if you are a service provider and you sell your time.

Assuming your $60 price is reasonable based on a fair assessment of the market place, that request for you to discount means you are not doing a good enough job showing the value you are offering at $60 per widget.  You need to work on that before entertaining thoughts about cutting your price.  I wrote about that topic last year in my blog entitled; Pricing Your Services

If you want to realize the harmful effect to your bottom line that a seemingly “small” 10% discount has on your future revenue stream take a look at this example.  In the example below I have shown the price for units sold over a five-year period. The first example shows a year one sales price of $54/widget after a 10% discount from $60/widget.  In both examples it is assumed that each year there is a 3% price increase passed on to the customer.   In the second example, no discounting took place in year one and the sales price in year one is $60/widget.  Take note that it takes until year five to get the sales price back to $60/widget when offering the discount.  I also show the total lost sale revenue over the five-year period and I believe it is significant.

47,772 Reasons

47,772 Reasons

With the example above I hope I have given you motivation for you to polish your skills so you can adequately demonstrate the value in your goods or services.  It is worth the effort to sharpen these skills.  I can think of 47,772 reasons.  Please note that I also showed you why you need to try to get discounts from your suppliers – it works both ways.

Have a great week defending against the insidious effects of saying yes to a discount.

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Written by pacelinebiz

March 25, 2013 at 8:05 am

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