We will be discussing a subject that may seem harmless on the surface but could be significantly damaging your profits – discounts. So, let's challenge the notion that discounts are always beneficial, explore the reasons why we offer them, and uncover how they might be hurting your business.
Before we delve into the consequences, let's clarify what a discount truly entails. A discount is the act of offering a reduction in price from your standard charges to entice customers to purchase a product or service at a lower cost. In theory, this may seem like a win-win situation, but we need to take a closer look at the underlying implications.
While discounts may appear to be a minor subtraction from the sale price, their effects on your business's profits are far from insignificant. Suppose your product or service is priced at $100, with costs amounting to $70, leaving you with a $30 profit margin. A 15% discount of $15 might seem inconsequential, but it's important to recognize that your costs remain unchanged. This implies that with the discount, your profit is reduced by 50%, now standing at just $15. :(
Furthermore, when you consistently offer discounts, you'll need to work harder to make up for the lost revenue. To illustrate, if you provide the same 15% discount to another customer, bringing your charge down to $85, you'll only make a $15 profit. To match the profit earned from a full-price sale, you'd need two customers purchasing at the discounted price.
The desire to offer discounts usually stems from three main reasons: the belief that it makes customers feel good, fear of losing potential customers without discounts, and the inability to say no to customer requests.
Let's break down each of these factors to gain a better understanding.
While it's true that customers may feel good momentarily when they receive a discount, it's vital to consider the long-term impact. Discounting devalues your product or service, leading customers to question whether it's worth the full price. Holding firm on your pricing conveys confidence in your value proposition and maintains your product's perceived worth.
Many business owners fear that without discounts, customers will be unwilling to make a purchase. However, when you've marketed your product effectively and demonstrated how it meets customers' needs, price often becomes less of a deciding factor. Instead, focus on showcasing the value you offer, and customers will be willing to pay for it.
Sometimes, business owners find it challenging to refuse a customer's request for a discount. However, sticking to your pricing is essential to maintain the integrity of your brand and ensure consistency. Politely explain your pricing strategy and the value customers receive, and most will understand and respect your stance.
Now that we've uncovered the potential pitfalls of discounts and addressed the common issues that hold us back from raising prices, it's time to adopt a new mindset. Remember these key points:
If you don't believe in the value of your product or service, how can you expect your customers to do so? Be confident in what you offer and be willing to pay for it yourself.
View selling as a consultation, where you identify your customer's needs, offer solutions, and explain how your product or service addresses their pain points. This approach builds trust and fosters long-term relationships
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