Time Is Not Forever. But Discounts Are.
By Andy Paul andy@zerotimeselling.com
The Myth of The One-Time Discount.
Everyone has been in this situation: the end of the month is fast approaching and you don’t quite have the numbers in hand. It is not panic time yet, but the big deal you forecasted to close this month has lost momentum and is threatening to carry over into next month.
Larry, your primary point of contact and chief internal advocate at your prospect, ABS, Inc., says the deal has gone to Purchasing. Ed, the Purchasing manager, says the paperwork is making the rounds to get signed off. You had offered ABS a discount contingent on their placing the order this month, before 4pm on the 31st. It is now the 30th, the fax machine is still silent and you haven’t received an email from their purchasing department.
You can hear the tick-tock ticking of the clock on the wall. Actually, it’s digital, so maybe that is just your blood pressure pulsating in your temples.
You confer with your boss, Brian. He says “Let’s give them another 2% if they get the order in by tomorrow.” You excitedly call Larry at ABS. “Hey, I can give you another 2% off the price. But, only if I absolutely, positively receive that order before month end, which is at 4pm tomorrow.” Larry’s excited and says he’ll check with Ed to see if that will move things along.
Well it does. But not how you would like. And you have just unleashed a cascade of unintended consequences that will have an enduring impact on the future profitability of that customer.
First, you just guaranteed the order wouldn’t be received on time. After you hang up with Larry he calls Ed in Purchasing and brags about being a hero because he just renegotiated the deal and extracted an extra 2% discount from you. Ed heaves a deep heavy sigh because now he has to re-do the purchase docs to reflect the lower price. “I thought they needed the order by tomorrow.” Larry shrugs and says “Don’t worry. They seem pretty anxious to get the business. I’m sure they’ll take the order no matter when we give it to them.”
This leads to the second unintended, but certainly not unforeseen, consequence in that the order will come in on the 1st or 2nd day of the next sales month. With the extra 3% and 2% discounts included. My observations over the years are that approximately 95% of all companies (and 100% of all salespeople) will not contest this extra discount. Here is how the situation plays out.
You bring the order to your boss. Brian challenges you on the discount. “Dude, we’re not giving this stuff away. The order didn’t come in before the end of the month so the discounts are no good. Go back and get the order for the right amount.” Actually Brian doesn’t really care that the customer took the discounts, he just doesn’t want to appear weak in the eyes of his boss, Stan, the VP of Sales. So he is going to send you back to confront the customer, knowing full well that it runs the risk of pissing off the customer and delaying getting the order by weeks. If ever.
Except now, Stan, your VP of Sales is standing over the Brian’s desk wondering why the order from ABS Inc last month hasn’t been entered into the system yet? Brian doesn’t want to deal with this so he motions you over to explain to Stan why it would endanger the great relationship you have built up with this strategic customer, in addition to which it would embarrass Larry internally, if Stan and Brian rejected the order. So, Stan relents and agrees to book the order.
Now you run head -on into the third unintended consequence which is that your base price to ABS is now 5% lower than it was 30 days ago. You sent the average sales price for ABS on a trip south to the border. And it ain’t coming back up anytime soon.
Salespeople suffer from situational amnesia. Customers don’t. A salesperson only sees a tactic to close orders. He or she only remembers the times that it worked and not the 95% of the times that it didn’t. The customer remembers that he can wait until the last week of the month and invoke a Pavlovian response from the salesperson to extort an additional discount. All the customer has to say is that “The order’s in purchasing. I’m pushing everyday but I just don’t know when it will see the light of day.” Empty silence fills the phone line while the salesperson furiously tries to calculate how big a discount it will take to dislodge the order from Purchasing….
The moral of the story is that you have to protect your margins by not negotiating against yourself. Don’t hand out discounts like candy at Halloween just to accelerate orders that you are going to receive anyway.
Andy Paul is author of the award-winning book, Zero-Time Selling: 10 Essential Steps to Accelerate Every Company’s Sales. A frequent speaker, Andy conducts workshops and consults with B2B sales teams of all sizes and shapes to teach them how to sell more by selling faster. Sign up for our monthly newsletter, “The Speed of Selling.” Enjoy what you just read? Subscribe to our blog!
© Andy Paul 2012
© Andy Paul 2012
1 Responses to Time Is Not Forever. But Discounts Are.
The scariest part about this entirely true story is that we as sellers set the deadlines that we are aiming to beat.
I never understood the desperate rush to get an order in by a certain date particularly (and I had manufacturing responsibilities at that time as well) because of the reasons above and:
b) it didn’t improve the sales numbers over a longer time horizon
c)it created huge ripples in the manufacturing and ordering process that led to higher costs (overtime, expedited shipping and so on) for the company so we bit the bullet twice.