Discount Impact On Profit Margin
Here’s a sales tool that an employee of “a leading UK manufacturer of architectural masonry products” took along to their next company (in a different field) and shared with their new sales colleagues way back at the turn of the Millennium.
The intention was to remind salespeople out in the field of the consequences of a seemingly innocuous discount embrace. Offering or accepting a discount, even a tiny one, could have a devastating impact on your profits.
The point was rammed home with this table (click thumbnail for full size image).
It’s a ready reckoner that drums home the horror of how much more astonishingly needs to be sold to compensate for the discount you just made. For instance, as this piece of salesarama (randomly found on the web and spookily similar in form) based on the exact same data shows;
if your GP is 25% and you’ve just capitulated with a 10% discount, you’re going to have to sell 67% more at that rate to make up the margin you’ve just thrown away.
Top sellers always “remember” this. In fact, I struggle to think of any truly successful solution salesperson I’ve ever known that discounts to win business.
There is of course a reverse way to look at these tables. What was the accumulated GP of all the products you sold last period? And what was your personal average discount rate given to customers? If you know these (and many a stellar seller tends to) then where they intersect is the extra effort you’re potentially unnecessarily expending.