"Hey, it's only a 3% discount!" How often have you heard this boast from a rep in your office? Is the rep's pride justified? Decide for yourself after reading this month's TTS newsletter where we address the powerful impact of discount on profits.
Only true sales superstars fully appreciate the impact of discounting on the profits of their company.All the best,
 
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"Hey, It's 'ONLY' a 3% Discount!"
Read This BEFORE Discounting!
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What is the best way to spot the great sales representatives on your team?
Certainly one way is quota-busting performance over time, but arguably an even better way is to add market share and average discount into the mix. Let's focus on average discount for now.
Last year, Robert exceeded his quota by selling $10,670,000 and Alice exceeded her quota by pulling in $8,000,000. Who is the more successful rep? Of course if you ask Robert, he'll say he is the winner. He is quick to point out that he sold $2,670,000 Million more than Alice so he is the MUCH better sales rep. But what if Robert averaged 3% more discount when compared to Alice? Robert says, "Hey it's only a 3% discount!" We'll see. Let's take a look at the numbers a little closer.
Here are some assumptions:
- Robert's average selling price (ASP) should have been $11,000,000. His poor sales skills brought the price down 3% to $10,670,000. Robert uses discount as a substitute for high quality, strategic and consultative selling skills. He does not utilize a trust-based selling methodology and is quick to provide discount to customers rather than selling the value of his solution. His motto is: "When in doubt, discount!"
- Alice is a true sales professional. She sold $8,000,000 without the need for additional discount. She sells using a methodology which inserts trust as the cornerstone of her approach to clients. She knows how to consult and sell using major account strategies. She sells value rather than discount. Her motto is: "Discount is the price that is paid for poor sales skills."
Well now let's take a look at Robert's comment: "Hey is it is ONLY a 3% discount!" Look at the analysis below. Bobby, Bobby, Bobby, that cavalier attitude you have toward the 3% discount just cost your company THIRTY THREE PERCENT OF YOUR PROFITS!!!!! That's right, a 3% additional discount in a business with 9% profit margins has a 33% negative impact on profit!
Moreover, Alice's $8 Million dollars brings in more profit to the company than Robert's $10,670,000 because Alice did not need the additional 3% of discount.
ROBERT'S ANALYSIS:
Sales superstars know how to compute the impact of their discount on the profits of their company. There is a one-to-one drop in profit for every discount dollar. Using Robert's analysis above, a $330,000 discount will drop directly to a $330,000 negative impact on profits. OUCH!
In percentage terms the impact is HUGE! How huge? Simple, you must first know the profit margin for your company. It is computed by dividing net income by total revenue. Let's say it's 9%.
Then ask, "For each point of discount beyond the average selling price, what will be the % impact on my profits?" If you have a 9% profit margin, each one point of discount beyond average equals 11% (1% Discount / 9% Profit Margin) negative hit to your profits! So in Robert's analysis above, his 3% discount beyond the average resulted in a 33% drop in profits.
What are the key take-aways from this story?
- Every dollar you discount drops directly to the bottom line (profits) of your company. It robs your company of the much needed capital to develop great products, maintain and support your clients, and hire and retain great people like you!
- Don't discount! Sell value! Never use discount as a substitution for high quality selling skills!
- Know your company's profit margin and be able to quickly quantify what 1% of discount means to your profit margin. Every sales representative should know this number!
- Use discount ONLY as a very last resort to close the deal.
- Sales leaders: Invest the time and effort to train your sales teams with strategic and consultative selling skills so they are not forced to use discount as a sales strategy. The ROI on high quality sales skills training is ginormous.
All the best,
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"I would rather try to succeed and fail than try to do nothing and succeed."
-Og Mandino
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"Customer loyalty is not won in the product development centers, in advertisements, or on toll-free help lines.
Customer loyalty is won, out in the field, in the trenches, during the sale call."
-Corporate Executive Board Survey
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"Think about your last sales call.
Did you provide value?
Would your customer be willing to pay you for it?"
-Unknown
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"If you can get all people in your organization to row in the same direction you can dominate any industry, in any market, against any competition, at any time."
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The Sales Strategizer App
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Trust Triangle Selling Unveils The Sales Strategizer-Pro™, the First Deal-closing Application for the iPhone, iPad and iTouch.
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Dan's book won a Medal
from Sales Books Awards!
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For more information on Dan's book go here.
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