Discounts to be calculated properlyDate posted: 28.01.2015 | Author: Harry Bovensmann
Discounts are to be calculated carefully. Sales people tend to allow discounts to push sales but what about the profit they’re giving away?
If a product has a profit margin of 30% and salespeople give a 10% discount to make the sale, a company loses a massive one-third (33.33%) of the available profit. After a salesperson has made a sales presentation, customers who respond by saying that the prices are too high often leave the salesperson scrambling for a response, and they then resort to giving the customer a lower price. Buyers are savvy in using this tactic, but salespeople don’t have to resort to automatically dropping their prices.
It’s possible for business owners to work 50% less and earn the same income from selling if they have a grasp on the value of profit margins, which get quickly eroded by discounting. If a company earns R3 000 in net profit from a product that is sold at a full price of R10 000, a 10% discount on that product’s selling price would mean that 50% more units need to be sold to earn the same amount of profit than if the units were sold at full price. This means that for a 10% discount, someone in the company has to work 50% harder to earn the company the same amount of money, which can be demotivating for sales staff and business owners.
Business owners and their salespeople must protect their price and margins. It’s important for businesses to invest in teaching sales people not to hesitate or stumble when a buyer insists on a lower price and to rather equip them with negotiating tactics that will help them hold firm on their prices. In spite of this, some people might still think that if they don’t give discounts, they will lose sales, particularly if it is an industry norm to give them. While this may be true, companies that hold fast to their sales prices can often afford to walk away from discounted sales and still make the same or more profit through other sales opportunities.