How to get sales to stop excessive discounting

Discounting – the double-edged sword that can either capture attractive logos or become the bane of profitability for scaling companies. In this article, we'll explore the nuances of discounting, dissecting when it's warranted, its immediate financial impacts, and how to establish effective guardrails for your sales team.

The Dilemma of Discounting

Discounting, when misused, can erode profits and instill a culture of unnecessary concessions. While there are situations where discounting is strategic, the challenge lies in discerning when it's necessary and avoiding undisciplined practices.

Unnecessary Discounting: A Common Pitfall

Undisciplined discounting often stems from insecure or impatient sales reps eager to close deals quickly. This practice not only lowers the average contract value of closed deals but also has long-term repercussions, instilling negotiation habits in customers and undermining list prices.

Immediate and Long-Term Impacts

The immediate financial impact of discounting is evident in reduced average contract values. However, the long-term consequences involve training sales reps to prioritize short-term gains over profitability and encouraging customers to undervalue listed prices.

Crafting Effective Guardrails

To navigate the discounting dilemma, companies must establish guardrails that guide their sales teams in making intelligent and strategic discounting decisions. Here are crucial steps to achieve this:

1. Define True Fair Market Value

Before addressing excessive discounting, it's paramount to determine the true fair market value of your products. Many teams overlook this step, setting prices arbitrarily during the initial product launch and rarely reassessing them. Regularly evaluate whether your prices align with perceived value, market trends, and competitor offerings.

2. Assess Price Alignment

Question the alignment of your prices with market value. If unsure, ask when prices were last evaluated or adjusted. A lack of recent adjustments indicates a potential misalignment, making it essential to reassess pricing strategies before scrutinizing discounting practices.

3. Establish Accountability Systems

Combatting discounting requires accountability. Sales reps need to understand the trade-off between excessive discounting and meeting quarterly quotas. Foster conversations about this trade-off, providing coaching opportunities to shift the focus from discounts to value-based selling.

4. Enhance Sales Enablement

Implement better systems for sales enablement and accountability. Develop workflows that capture discount requests within your CRM or CPQ system, preventing on-the-fly negotiations via email, Slack, or text messages. This structured approach allows for teaching moments and confrontations, reducing unchecked discounting.

5. Encourage Strategic Discounting

Recognize that discounting can be a valuable tool when used strategically. The most successful teams deploy discounts intermittently, reserving them for specific circumstances where they align with broader business goals.

Conclusion: The Art of Strategic Discounting

In conclusion, discounting is a powerful tool that demands careful navigation. By establishing guardrails grounded in understanding fair market value, promoting accountability, and enhancing sales enablement, companies can transform discounting into a strategic asset.

Remember, the key is not to eliminate discounting entirely but to use it judiciously and strategically. As you embark on this journey, prioritize aligning prices with market value, fostering accountability, and empowering your sales team to leverage discounts strategically.

Happy discounting!

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