The Price of Discounting

The Price of Discounting

The practice of discounting prices is common in many industries. Often times, sales teams have some ability to discount on their own with additional authority levels that can be tapped with their managers. While many discounts are necessary to close a sale or encourage certain buying behaviors, there are many other discounts used unnecessarily.

Either way, there is a significant “price” that is paid at the sales level for price discounts. Let’s consider a sales person who is closing a sale for $100,000. And, the gross margin on the sale is only 20%.

What if the sale is closed at a 10% discount or $90,000? How will this affect the company’s profit goals? Could value based selling avoid having to apply the discounted price all together?

With a 10% discount and a 20% gross margin the sales person will need to sell an ADDITIONAL $100,000 in product in order to make up for the profit dollars given away by the discount. That’s double the original sale!

When faced with this reality most sales people find a way to close the deal without a discount. Of course, with higher margin products, the required additional sales to achieve break-even are reduced.

The next time you are considering a discount, think about the additional sales required to make up for the margin that is given away.

At Price Point Partners, we not only help develop value-based pricing strategies, we help to train the business to business sales team on how to implement value based selling techniques in order to avoid discounting and maximize profits.  In our Selling for Profit™, value based sales training, Price Point Partners incorporates an easy-to-use chart to show your sales team the additional sales required to reach the same profitability goals after price discounts are applied. Contact us at 330.342.0923 and we will be happy to send you a copy, discuss your value-based pricing strategy and how your business to business sales team can align their skills to sell at full price and maximum profit.

About the Author
Ralph

Ralph Zuponcic

President, Price Point Partners

Ralph is a national authority on strategic pricing. He has been featured in publications including The Wall Street Journal, Fortune Small Business, CFO Magazine and Marketing News.

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