A discount is like time. Once you give it away, you don't get it back.
I've developed a fairly strong opinion about discounting over the years.
I'm not suggesting there is never a legitimate reason to discount. There is. But I believe the consequences of discounting are often much larger than the discount itself.
Think of it as an iceberg.
Above the water line is what we can see.
A customer asks for a discount.
The salesperson agrees.
The order is won.
But something else may have happened.
The customer learned that your price is negotiable. The salesperson learned that discounting is an acceptable way to close business. A precedent may have been established for the next negotiation.
Those consequences matter. But I'm even more concerned about what happens below the water line.
A few percentage points here. Another concession there. A special price for an important customer.
Individually, none may appear particularly dangerous. Over time, however, those decisions can quietly accumulate in the financial performance of the business.
Imagine a $10 million company.
Over time, discounting across the business quietly grows to the equivalent of just 2% of revenue.
That's $200,000 a year in price the company isn't capturing.
Nobody decided to give away $200,000. There wasn't a $200,000 check.
It happened one discount at a time.
And it may take disciplined analysis to even see it.
By the time management recognizes the accumulated impact, those discounts may be deeply embedded in customer relationships and pricing expectations.
Now try getting that $200,000 back.
Meanwhile, the dollars surrendered along the way are gone. They weren't available to make payroll, buy inventory for the next order, develop people, invest in equipment or support the next R&D project.
You don't get to go back and use them.
This is one reason I believe companies need discipline around discounting—and why demonstrating customer ROI is so important.
If you can demonstrate the Value you create, you are in a much stronger position to defend the price required to capture your share of that Value.
The lesson experience has taught me isn't never discount.
It's this:
Understand the full cost of a discount before you give it away.
Because the discount on today's quotation may only be the part of the iceberg you can see.
