Discounting to Create Cash Flow? Be Careful.

Recently I spoke at a large conference on the subject of how to maintain your price and avoid discounting. After the presentation, a businessperson approached me and asked what my strategy would be if his company needed to discount price to create cash flow. This is not an easy question to answer.

Sure, I could easily throw out a response that implies that the reason a company has to discount is because it hasn’t done a good enough job of building its pipeline or hasn’t invested enough in the right type of marketing. I know, though, that this isn’t the answer a person needs when faced with the issue of cash flow.

Cash flow is a huge issue to a lot of companies, large and small. I would be lying if I didn’t admit that even in my own company we’ve experienced periods of tight cash flow.

The question we’re answering is if cutting a price to get a deal is a smart way to create cash flow.

Here is my answer:

Before making any decision about cutting a price to create cash flow, think about how you can maintain the price point and offer the customer more value. Cash is king. I first heard Donald Trump speak that phrase and I’ve never forgotten those three words.

Offer your customer more of something. Anytime you can close the sale at the original price, you’re going to be better off. Just be careful in what your additional offering is.

The last thing you want to do is offer the customer something more that ultimately winds up costing you more in cash long-term. Notice I said cash. I’ll give up some percent margin before I’ll give up cash.

Before you look at offering the customer more, you have to ask yourself if you’ve truly done a thorough job of actually selling. Many times I’ve found salespeople will cut their price only out of a false belief that that is what is needed to close the sale. You might say the salesperson or business owner is panicking over what they believe, not what the customer believes.

Before you consider discounting your price, make sure that the customer fully understands the value proposition you offer and that you fully understand the customer’s needs and wants. Too many times salespeople will flinch and offer a reduced price too early in the selling process.

A thorough selling process means you need to ask enough questions and follow-up questions – and listen – until you are certain you understand what the customer wants. The more you focus on the fact that what you have to offer is of value to your customer, the less appealing discounting becomes as the only way to close a sale.

Is Discounting Ever Needed?

If what you’re selling is bought solely in an auction type of environment and cutting your price is the only way you know you can get the deal, then yes, it does become an option you can use.

Regardless of the circumstances that are compelling you to discount, you still must be very wise in your approach. You have to remember that if you cut your price for one customer, you will potentially send signals to other customers and prospects.

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