How to Stop Discounting

Discounting is the curse of the B-to-B sales world. Sales reps do it all the time. And it wreaks the bottom line.

Consider the impact of discounting on a company with $50 million in sales, a 60% gross margin and $25 million in fixed costs:

Even a discount of 5% has a devastating impact on the bottom line: a 30% decrease. Here’s another way to look at it: Every 1% of discounts reduces the bottom line by 6%.

Key causes of discounting are failure to demonstrate value and prematurely pushing for a decision.

Demonstrating Value

The Problem

This is the major cause of discounting. The buyer may not believe solving her problem is urgent. She may not even realize she has a problem. At the same time, she may not believe that the seller has a unique solution. The seller may be tempted to lower his price to get the buyer to act now. The buyer is also willing to consider other providers. And where there is competition, there is discounting.

The Solution

What can do the seller do? He must convince the buyer that she needs to solve her problem now, he has the best solution and that solving the problem is worth his price.

The first step is to show the buyer how much it’s costing her to not solve the problem. Cost can be increased expenses or lost opportunities.

The seller must quantify the problem. The buyer needs to see that it’s both real and needs to be fixed now. Not only is it costing her money, it’s putting her reputation and job security at risk.

The seller then needs to do a ROI analysis to quantify the benefits of solving the problem.

Ideally, the return is a multiple of the investment. Let’s say the seller can show the buyer that a $100,000 investment in his solution will yield a $500,000 reduction in costs over two years. That’s a five-time return on investment.

Next, the seller needs to show the buyer that he can solve her problem. He does this by building his credibility with her and gaining her trust.

Pushing for a Decision

The Problem

Let’s consider another salesperson who is nearing the end of the quarter and is way under quota. She needs to close some big deals fast. This salesperson thinks the only way to close the deals quickly is to offer a substantial discount. The buyer may sense weakness (or panic) from the seller and push for more discounts.

This also forces the salesperson to compete on price, rather than value — a terrible position to be in.

On the other hand, the buyer’s company may not be ready to make a decision yet. Using a discount to push a premature decision may simply torpedo the deal.

The Solution

The causes of this salesperson’s problem could include a weak pipeline of qualified prospects and/or lack of understanding of the buyer’s purchase process. Better research and more prospecting can help, then she’ll need to effectively qualify the prospects.

Companies have their own buying processes and their own schedules. The salesperson needs to be persistent but patient. The buyer may have the authority to sign a contract, but he can’t make the decision alone. Several other executives influence the buying decision. The seller’s job is to understand the decision-making timetable, know who all the players are and make sure they are all on board.

Talent, Training, Tools — A Well-Armed Sales Team

The most effective salespeople are well-armed. They know their offerings inside and out. They understand their customers’ problems, and they know how to offer a solution with compelling ROI.

Obviously, salespeople need talent, but even the most talented salesperson needs:

Tools

• Prospect research
• Quality leads
• Product information
• Content to educate prospects
• Sales materials

Training

• Product knowledge
• Market knowledge
• Negotiation skills
• Sales skills

Well-armed salespeople don’t need to discount. They offer the right things to the right people at the right price at the right time.

About the Author | Peter Helmer

Peter Helmer is a principal in The Sales Management Group (SMG) which provides interim sales management and sales consulting services to middle-market companies. SMG works with CEOs and sales leaders to improve sales efficiency and effectiveness. SMG’s services include: sales audits, compensation plans, sales leader onboarding, and territory management plans. Peter writes the Sales Management Blog.