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Thursday, February 23, 2006

Cut Your Prices And Let Your Business Bleed To Death

Discounting Is Rife
In So Many Organisations

Salesmen like discounting because buyers find it attractive and the saleman gets more sales.

But should you discount?

I’ve created a table (as an Excel file) that shows the extra number of units you’d need to sell at your discounted price to get the same revenue you would have got at the original price.

I tried to copy it as a table into blogger - one unhappy blog editor!

So if you'd like a copy email me with the words "discount table" in the subject and I'll send you the Excel file, email to web at

Anyway, let me explain by drawing two examples from the table

If your current profit margin is 15% and you reduce your price by 5% you need to sell an extra 100 units to get to the revenue you enjoyed at the original price.

Now look what happens if you discount slightly more to say, 8%.

You have to sell another 400 units to get the same revenue you had at the original price.
Now you tell me does that make sense?

The easiest answer is it, "depends whether your salespeople get all, or most, of your sales."

If you have one salesperson they’re going to have to work 400 times harder to get the same revenue. Or you recruit enough sales people to sell the same amount. Whichever way you do it you’ll either extend the length of time needed to sell the original gross revenue or you’ll increase the costs of sale massively.

But there’s worse to come. Because the discount puts a pressure on the firm (often hidden by excuses and “explanations”) the customer loses out on the value they should be getting for their money.

So think carefully before offering a discount. Is it appropriate for your business?

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