Discounting is a powerful lever salespeople have to help win deals. It can win deals you might have lost and possibly shorten the sales cycle. These are good outcomes. Sadly, though, salespeople often offer discounts for less profitable reasons. Here are five of them:
1. Lack of Confidence in the Product’s Value
They may not fully understand or believe in the differentiated value of what they’re selling, making it harder to justify the price. Salespeople who don’t know the value can’t communicate the value.
2. Weak Value Communication Skills
Salespeople may struggle to communicate the ROI or business impact of the solution, so they resort to competing on price. Even if they know and believe the value, if they can’t communicate it, they won’t win. Price becomes their only lever.
3. Fear of Losing the Deal
The perceived risk of losing a potential customer can feel greater than the cost of a discount — especially late in the sales cycle. Procurement people are notorious liars and can drag out negotiations even though others already made the vendor selection.
4. Incentivized on Volume, Not Margin
Compensation plans often reward closing deals, not profitability — so sellers are motivated to discount if it helps them hit quota faster. Salespeople would rather the deal close at a lower price faster. Is that what’s best for the company?
5. No Clear Pricing Guardrails
When leadership hasn’t established discounting limits, approval processes, or strategic pricing tiers, sellers often default to discounting. After all, price is the easiest lever to use.
The solution to 1-3 is learning to sell value. Most salespeople don’t understand how buyers value products. But don’t beat up salespeople. Nobody else in the company knows either. Once sellers know value, they can learn to communicate it and become more impervious to procurement tricks.
Solving 4 and 5 are management issues. The company determines the sales commission plan, their discount authority level, and the discount escalation process. Remember, salespeople will follow your rules, but they will game the system to get the best return for themselves. Design your rules carefully.
Discounts should only be given when necessary. Every dollar discounted is a dollar less revenue and a dollar less profit. Reducing discounting is the easiest way to grow profitability. If you want some help, let us know. It’s what we do.
Share your comments on the LinkedIn post.
Now, go make an impact!
Tags: pricing, pricing value, value, value-based pricing
