Out-of-Control Price Cutting Is Killing Your Business
B2B sales is practically synonymous with discounted prices. Whether you’re talking about negotiated spot-bids, levels and columns in a price matrix, or long-term customer agreements, discounting is the way business gets done. And for good reason — each customer values each product differently depending on a wide range of factors. But when it comes to discounting, how much is too much?
Over-discounting is a natural tendency
Sales and pricing people already know that each customer values products differently, and they attempt to tailor the discounts accordingly. They also realize that getting the price just right is a very risky proposition — charge too much and you lose the order entirely along with all its revenue and margin contributions. When faced with such a risk, there is a strong bias toward over-discounting in the belief that it’s better to keep most of the revenue and margin than to lose it all.
Even small discount errors add up to big dollars
Some may think over-discounting is relatively harmless since it results in just a few small cents given away on any single line item. But the overall impact of these leaks — which are repeated thousands of times every day in your business — is tremendous. It quickly reaches the level of millions of dollars in lost margins and revenues. Why take millions out of your own pocket for the sake of a “safety factor” on every price you quote, when it’s not required to close the business?
Strict adherence to the wrong price is not the answer
Some companies believe over-discounting is a compliance issue which they can solve with more layers of approval or stricter limits on the sales person’s price discretion. And they’d be right if it weren’t for one thing — your customers don’t care if the price aligns with your internal expectation or not, they only care if it lines up with their perceived value. If your compliance mechanism causes you to quote a price the customer can’t live with, you lose the business. When you force the wrong price into the market through compliance mechanisms, the biggest loser is you. Is that a risk you’re willing to take?
Address over-discounting at its source
Successful companies recognize that when you know what each customer is really willing to pay, you eliminate the risk of losing the business due to price. And when you eliminate that risk, the pressure to over-discount is likewise gone, right at the source. Price discounts still happen of course, but MarginMax gives companies the ability to know the minimal discount needed to win the business while protecting margins.