I was approached by the Branch Manager from a company that was one of my suppliers. Twice a year, he would come by or call to see if I was ready to come work for him selling the products I used in my business. After years of “persuading”, I decided the timing was right.
I called him and asked if we could talk about how my working for him would look. We met in his office and had a good long conversation after which I agreed to take a salesman’s position.
Several weeks passed and I sold nothing. NOTHING!
Finally, at the small Star Motel, the lady took pity and bought a case of toilet paper. However, I had to match her current price to get the sale but what did a discount matter at this point. I needed to sell something. Period.
Little did I realize at that moment, but that initial act turned me into a discounting salesperson. I didn’t know any better at the time. Matching or beating a price became my only sales tool.
Then, over time, I discovered the negative effect of discounting for a sale.
- It takes money out of your pocket
- It costs your company’s bottom line
- It develops disloyal customers
- It gets negative attention from management
- It requires more activity to make up the money
Even if you are not compensated by commission, it still causes several of the above issues.
Because there are so many compensation plans, it is difficult to draw exact conclusions but this is representative.
Over time, I learned how to sell without discounting but it didn’t come easy or fast.
Discounting Takes Money Out of Your Pocket
Discounting is the silent thief that takes money out of your pocket. In my previous article, I outline in detail how discounting lowers your monthly sales and paycheck. It can take thousands of dollars without you realizing it. If discounting is your only tool, training is the only answer, whatever form that takes.
Discounting Costs Your Company’s Bottom Line
Not only does discounting cost you money, but it can cost your company the profits it needs to stay in business, thus keeping you employed. The number of times I’ve heard an employee say, “Oh, they have lots of money. They can afford it.” shows they have no idea how business works.
Without getting into a discussion about a company’s money, realize that they stay in business if they generate enough profit. That percentage varies with industries but is required for your job security.
Discounting Develops Disloyal Customers
Customers who make purchase decisions based solely on price will buy from anyone that offers a product cheaper. Their loyalty is to a cheap price, not a salesperson or company. The minute another salesperson comes in and beats your price, you lose a customer. Unless you discount even more. That is not a way to build your customer list.
Discounting Gets Negative Attention from Management
Deep discount rates certainly get the attention of upper management. And, it is the type of attention you don’t want.
Here is a real-life example from a previous workplace.
Employee A was selling $25,000/month at a 55% margin.
Employee B was selling $45,000/month at a 23% margin.
Many would think that Employee B was the star. Let’s do the math.
Employee B sells $45,000 @ 23% margin for a total gross profit for the company of $10,350.
Employee A sells $25,000 @ 55% margin for a total gross profit for the company of $13,750.
Guess who made more commission money on their paycheck.
Discounting Requires More Selling to Make the Same Money
Let’s stay with the above example. The next question is how much more work does Employee B have to do to make as much as Employee A? To make it simple and in round numbers, Employee B has to sell $60,000 at 23% to bring the gross profit to $13,800.
That salesperson has to work more than twice as hard to make the same money.
I have to admit, I am a proponent of working smarter, not harder. And this requires working a lot harder for the same compensation.
Why Does this Problem Exist and Persist?
So, what is the root cause of discounting and why does it persist in companies? I’m glad you asked.