People who are not seasoned in sales often think discounts are more powerful than they are. As a result they end up giving away things they don’t need to. Here are some tips on using discounts.
Rules for Giving Discounts
- In a negotiation, never lead with a discount or offer one without a quid pro quo.
- An unexpected discount is a great thing to give as a surprise (not a negotiation) especially when someone has done something nice for you, or you’ve fixed a problem for them. This engenders loyalty.
- Again, in a negotiation, if someone asks for a discount, you can always say no and see what happens. Many people (myself included) routinely ask just to see if they get one. It doesn’t always mean they won’t buy without it. There’s a hint for what to do when you’re on the buying side.
- If you say no, and they back off, be prepared to offer a discount but in exchange for some concession from them: higher volume, slower turn around, referrals – something. Otherwise it gives the impression that your discounted price is the real price and the higher price is a rip-off.
- Whenever you do give a discount (even when it’s 100% – you’re giving something for free) invoice at full price and put the discount on a separate line item. It reinforces the fact that your discounted price is not the real price and it reminds people what you’re doing for them.
CEO and Policy
As CEO, you should have a policy about discounts so that they are applied consistently in your organization. It should mention who can give discounts and under what conditions. This doesn’t mean you shouldn’t let individuals use their judgment – you should. But the limits of that judgement should be spelled out. For example, you might say “If a sales person feels a discount will help close a sale faster they can give a discount of up to 5%”
The benefit of stating a policy that way is now you can run some tests. Do deals really close faster with a discount? Do larger discounts result in deals closing faster than smaller discounts? If so, by how much? When is it better for the company to not give a discount and have a deal take longer? These are the things you think about as CEO.