When you’re looking to close a deal, it’s tempting to offer a discount as a sales tactic to wrap things up. Often, customers are waiting for you to do so before committing and may drag out the process just to see if you’ll lower the price.
It’s often a lazy way to approach the sales process and a costly one, too. Once you establish that you’ll lower the price in one transaction, buyers will expect you to do it in every transaction. They’ll no longer believe the prices you first present them and always look for a better deal.
Discounting is generally not a great idea.
Your job as a salesperson is to protect the yield. While your pricing may vary due to fluctuations in supply and demand, seasonality, or sales agendas, there’s always a bottom-line price that impacts the profit margin. When you start to discount, you run the risk of impacting profitability negatively and devaluing your product or service.
Here’s an example. In the software business, monthly recurring revenue (MRR) is essential to building a subscription model. It’s tempting to discount offers to start to build that revenue base, especially for a start-up trying to scale rapidly. Discounting, however, can have a long-term impact on your total revenue, reducing lifetime customer value by more than 30%.
Rather than discounting, consider negotiating based on other items in the deal, such as:
- Payment plan terms
- Extra features
- Warranty extensions
10 Tips for Effective Discounting
If you do have to reduce the cost, always get something back in return. This lets buyers know that you are respecting their need to lower their costs but demonstrates your commitment to pricing.
Tip #1: Limited Time Offer
One effective tactic is to offer a discount and put a tight timetable on it. A limited-time offer can help move sales along. Just make sure if you put a deadline on an offer and the deadline passes, the offer expires. Otherwise, it can undermine trust. Never leave discounted offers open-ended.
Tip #2: Take Something Away
When you are making price concessions, let prospects know that you believe in the value of what you’re offering and discuss whether some items are less important. You may be able to lower the price by removing items that are less important to the customer, which also reduces your costs. For example, if you’re offering bundled services, can you take some components away that will also reduce your cost of fulfillment and justify lowering the overall cost?
Tip #3: Ask for Something Extra
Another strategy is to ask for something extra from your customer. For example, asking for a referral and introduction to someone else that would benefit from your products or services or a testimonial based on their experience.
Tip #4: Add to Your Offer
Rather than discounting your price, add something extra to sweeten the deal. For example, can you offer discounts on upsell or cross-sell items? Can you add additional products or services that will benefit your customer but do not significantly drive up the costs for you? You might also consider offering discounts on new orders within a prescribed period.
Tip #5: Use Expiring Discounts
Another discounting strategy you might want to employ is expiring discounts. For example, you might offer a lower price for the first three months of a subscription service that reverts to standard pricing after the trial period or a discount on the first order with a commitment for future orders.
Tip #6: Discount Based on Higher Volume
If you’re offering a product or commodity, you can “trade” discounts for increased volume. If a customer commits to a higher volume of products, you may be able to lower the per-item price. Each party benefits from the deal, which is what you always want to achieve when you are offering a pricing discount.
Tip #7: Open New Markets or Products
One place discounting may make sense is when you are trying to enter new markets, offering new products, or trying to break into a new industry — especially if you don’t already have a track record. Since you always want to establish that any discount needs to benefit both parties, you can explain to your prospect that you are offering a discount because you’re trying to establish a foothold in a new market.
Tip #8: Employ Value-Based Discounting
Rather than basing pricing on cost-plus or competitive pricing, consider using value-based pricing to create offers that align with what buyers value. For example, when customers commit to recurring orders, this can create a more consistent cash flow. There’s a value in that for you in that you don’t have to constantly re-sell a customer and you can translate that value into cost-savings for the customer.
Tip #9: Discounts Based on Incremental Increases
Salespeople often find themselves trapped by providing a discount on a first deal with a customer and then customers demanding the same discount for every order in the future. An effective sales strategy is to offer discounts on subsequent purchases based on incremental increases. If a customer bought 10,000 items in the first deal, discounts might be offered in tiers starting at 12,000 or 15,000 units for future deals.
Tip #10: Swap Products or Services
Not every part of every deal has the same profitability. You may be able to discount pricing by eliminating low-margin products or services or replacing them with high-margin products or services. For example, you could discount pricing for live on-site training by replacing it with on-demand video training.
Is Discounting Really Necessary?
When you’re dealing with a customer that wants a discount, remember that it’s less about the actual cost and more about value. If the customer truly believes what you’re offering would solve their problem or do exactly what you say it will, the issue is rarely price. Before you offer any discount, you should probe to find objections and overcome them to reiterate the value first. If you find that price really is the issue, then consider using one of these tips to close deals.