David Cummings on Startups

Discount Policies for Sales Reps

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David Cummings

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Sales reps are awesome: smart, hard working, and in control of their own destiny. They also love the thrill of the hunt — whatever it takes to win the business. With such passion for winning a deal comes the desire to provide discounts. Quotes like “the client will buy if we just give a discount” or “the client really wants our stuff but can’t afford it” are common. Product should always be sold based on value, never on price.

Here are some tips for preparing a discount policy for sales reps:

  • Make a discount policy right away and implement it as soon as you have a sales rep
  • Never give anything without asking for something in return (e.g. we’ll provide a discount in exchange for you being a case study)
  • Clearly articulate when a discount can be given and when it can’t (a policy written in advance removes emotion from a deal that’s hot and heavy)
  • Provide points or units for discounts so that they are rationed by reps (e.g. X discounts for every Y deals sold)
  • Consider reducing commissions even further when a discount is given (e.g. X% discount results in Y% reduction in commission)
  • Outline a floor price that the deal can never go below (e.g. no more than X% discount regardless)

Discounts are a part of life unless you employ the CarMax model with no discounts at all. Most companies do allow some discounting and a discount policy should be put in place.

What else? What other tips do you have on discount policies for sales reps?

Comments

4 responses to “Discount Policies for Sales Reps”

  1. Joe Gallagher (@JoeGallagherIV) Avatar
    Joe Gallagher (@JoeGallagherIV)

    Every Day Low Pricing (EDLP), or a no promotion/discount policy, is in my opinion best for the long term. With that said, it is extremely difficult to achieve across the board consistent pricing because every lost sale draws into question pricing, especially in startups just learning how to price their product.

    Here are some reasons why I think it is an important long-term policy:

    1) It constrains the easiest variable in the sales process to change thus forcing the company to root cause each lost sale. When it is determined what the root cause of the lost sale was, the team can make one of two choices: invest in solving the non-price related root cause (sale pitch refinement, customer selection, missing product feature, etc) or publicly drop the price to the New Low Price (NLP)

    2) It builds trust with your potential customers and current customers. For potential customers, closing the sale requires a certain level of trust. With a startup product, there are a lot of things to question: is their product stable? Does it have all the features I need? Will they be around next year? EDLP takes the price question off the table and forces the sales conversation to focus on value rather than price haggling. For current customers, EDLP gives them the peace of mind that they got the same price as everyone else that was closed during the same price period. During the innovation adoption cycle there is a phase where the adopter assesses their adoption, in this case purchasing the startup product, and asks “was this purchase worth it?” If at this point they can look back and find cases of heavy discounting to other customers, they may return the product or not renew the service. Worse yet they may no longer be a product advocate informally influencing others in the market, and rarely will you realize this loss.

    3) EDLP creates cleaner information. When a customer says no to your product, then you counter with a discount, and they agree to purchase, why did they change their mind? You may be picking up a customer that won’t actually be happy with your product but the incremental cost (time, emotional investment, etc) of researching alternative products to yours is now more expensive than just picking up yours at the discounted rate. These are the customers that drag on your customer support staff with complaints, drag on your sales staff asking for more freebies and features, and inevitably drop your product. Finally, if your brand is known for EDLP in the marketplace, and you display that pricing publicly, you know that most every potential customer contacting you is genuinely interested in learning more about your product at the stated price. They may not buy, but you at least know your sales staff is spending their time more efficiently.

    These are just some thoughts, and it cannot be overstated how hard it is to commit to EDLP.

    Reply
  2. Kishore Avatar
    Kishore

    Great article and talking points. As an Enterprise Sales rep for a Fortune software company price is the first card my peers and I may pull to bring in a sale, ultimately diluting the value-based approach we’ve been building up. When a client isn’t ready to sign the contracts it may be due to a host of reasons, ie: timing, resources, not complex enough to bring in software.

    More times than not, demonstrating value of your product effectively to a prospect will land you a deal in which price will not be a determining factor. If a prospect isn’t ready to commit, ask pointed questions and find the real reason.

    Reply
  3. Jeff Demers Avatar
    Jeff Demers

    Very interesting blog post for sure. I like tying a discount into some tangible return – immediately has me thinking about video testimonials and case studies that are otherwise very hard to get.

    Joe Gallagher’s response is interesting and thought provoking as well. Attributing lost deals to price masks the bigger issues in the sales process – how could this not be true at least part of the time? Also, catering to people that buy on price will lead to customers that may be undesirable. This later point is equally interesting – I can say without hesitancy that my biggest customer advocates and evangelists did not buy on price.

    Great topic.

    Reply
  4. Scott Avatar
    Scott

    Does anyone have a sample discount policy?

    Reply

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