Clients routinely ask us for discounts. The requests are fairly benign, and usually aren’t for much money. “How about knocking 5 percent off for paying upfront?” or “Is there a better price if I pay in cash?” None of the requests are deal killers, and the small amounts are designed to entice us into saying yes.
I’ve never been a fan of discounting. It’s almost a joke. My own family members give me a hard time about it when I let them know they should pay more because they’re more likely to experience issues, ask for little exceptions to our rules, and be a general “banana skin on the doorstep of progress,” as my mother is fond of saying.
Also by Henry Clifford: Avoiding Change Order Black Holes
I’m often asked, “Do you have a payment plan?” “Sure,” I reply, “You pay us. That’s the plan.” In all seriousness, we do offer generous terms, 0 percent financing, and accept just about any method of payment imaginable. My own third rail just happens to be discounting. If you had room to give your client the best price, why didn’t you lead with that? As my grandmother would say, “Each cat to his own ashcan.” Besides, if you do it once, the client will expect that same discount from then on. Congratulations, you’ve created a monster.
While I don’t discount personally, we’ve had salespeople over the years who use discounting as a selling tool. To some extent I’ve turned a blind eye to these little rule breaks here and there, but a presentation I attended last Spring changed all that. Renowned pricing expert Casey Brown led one of the keynotes and began with a simple question, “How many of you would discount a sale 1 percent if you thought it would close the deal right then and there?” Most of our hands shot up. She then went on to illustrate the financials of a fictitious company where their net profit hovered around 5 percent. My stomach started turning. “You guessed it,” said Brown. “That 1 percent discount is 20 percent of your net profit.”
I’d never thought about it that way. Turns out neither had a room full of 200 CEOs either. My attitude toward discounting hardened like Pharaoh’s heart. Not only was it annoying, it was killing our bottom line.
Policing discounting is like any other activity in an organization — what gets measured gets managed. Our sales comp policy permits discounting if the overall project will hit mix/margin targets and exceptions need to be approved. I’m also planning to present a version of Casey Brown’s “Power of 1%” talk to our team at an upcoming all-hands meeting.
What are you doing in your organization to communicate the power of 1 percent?
Stay frosty and see you in the field.