The Discount Nobody Asked For

Nobody has to ask for it. The customer enquires, the owner quotes, and before the customer has said a word about the price the owner has taken something off. Ten percent for a first project. A free month on the retainer. The smaller package at the larger package's spec, because it felt mean to hold the line. The customer did not negotiate. The owner negotiated with herself, lost, and called it goodwill.

I want to put a number on what this costs, because it is nearly always underestimated. Take a business turning over three hundred thousand pounds a year at a thirty percent margin, which is ninety thousand of profit before the owner is paid. Now suppose the owner gives away ten percent of the price, on average, before anyone asks. That is thirty thousand pounds off the top line. It is also thirty thousand pounds off the profit, because the costs of delivering the work did not fall when the price did. The ninety thousand becomes sixty. A third of the profit has gone, and nobody in the business, including the owner, would describe the business as discounting.

The unasked discount comes in disguises. The proposal that leads with everything that is included, three pages of it, before it gets to the price, so that the price looks small against the list and the owner feels she has earned it. The scope that quietly grows because saying no felt awkward, which is a discount paid in hours rather than pounds. The old client still on the old price, five years and two price rises later, because raising it would mean a conversation. Each one is reasonable on its own. Together they are the reason a business with good revenue has no margin.

The floor makes them visible because the floor knows the margin on each sale, and a discount is a margin decision wearing a kindness costume. On the roof, where every sale looks the same, the discount is invisible until the year end.

The response is to find the discounts you are giving without being asked, and to stop, one at a time.

Start with the proposal. Put the price on the first page. State what is delivered for it in a few lines, not three pages. The customer who needs the detail will ask for it, and the one who does not will say yes without having been talked into thinking the price needs justifying. A proposal that leads with the number is the proposal of a business that knows what the number is.

Then look at the old clients. List everyone paying a price that is below your current one and work out the gap. Then write to each of them, plainly, with the new price and the date it starts, and a sentence of thanks for the years. Most will stay. The ones who leave were paying a price the business could not afford to offer, and their hours go to customers who can. This is the single fastest margin improvement available to most owners and it is postponed for years because it feels like a confrontation. It is a letter.

Then the scope. Write down what is included and what is not, and when a customer asks for something outside it, quote for it. Not with reluctance, as a normal part of doing business. The customer expects this from every other supplier and will not think less of you for it. The owner who absorbs the extra work is not being generous. She is paying the customer to be her customer.

Finally, catch yourself at the moment the discount is about to be offered. It is usually the moment just after the price is said, in the silence I wrote about yesterday. The urge to fill it with a concession is the fear of rejection, and it is a subject I will return to next week. Tomorrow, the other place margin leaks, which is the follow-up that was never sent.

Continue reading: The Follow-Up That Never Went →

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