Why Discounts Might Be Killing Your Profit – And What to Do Instead
Have you ever had a salesperson who believes that offering a discount is the easiest way to close a deal? They might not be wrong—discounts can help secure a sale—but at what cost to your business? If your product has a 30% profit margin and your team regularly offers a 10% discount, you’re losing a staggering 33% of your available profit.
The Hidden Cost of Discounts
During a seminar for a large retail group, a buyer shared their favourite tactic:
“I let the salesperson make their full pitch. I ask questions, listen to their explanations, and then simply say, ‘I’d love to order, but your prices are too high.’ Then I sit back and enjoy watching them panic. Most salespeople, desperate to close, immediately drop their price. And when they do, I say, ‘You’ll have to do better than that.’ Nine times out of ten, they offer an even lower price—without me saying another word.”
The reality? Many buyers are trained negotiators, using silence and pressure to make salespeople second-guess their value. But you don’t have to play their game—you can change the rules.
The Maths of Profit Erosion
Let’s look at the numbers. Suppose your company sells pumps at a price of £10,000 each, with a net cost of £7,000 per unit. That’s £3,000 profit per pump.
- Selling 10 pumps at full price generates a £30,000 profit.
- Selling 10 pumps with a 10% discount reduces revenue to £90,000. Since costs remain at £70,000, your profit drops to £20,000.
- To earn the same £30,000 profit at a 10% discount, you’d need to sell 15 pumps instead of 10—a 50% increase in workload just to maintain the same bottom line!
| Sales Volume | Discount | Gross Revenue | Net Cost | Profit |
|---|---|---|---|---|
| 10 units | 0% | £100,000 | £70,000 | £30,000 |
| 10 units | 10% | £90,000 | £70,000 | £20,000 |
| 15 units | 10% | £135,000 | £105,000 | £30,000 |
The Takeaway
A 10% discount means your business has to sell 50% more just to maintain profitability. It’s easy to see how this can spiral into working harder for the same—or even less—profit.
So, What Should You Do Instead?
- Train Your Sales Team to Sell Value, Not Price – When a buyer pushes back, don’t panic. Reinforce the unique value and benefits your product or service offers.
- Use Negotiation Strategies – Instead of slashing prices, add value in other ways (extended service, priority delivery, bonus items).
- Set a Clear Discount Policy – If discounts are unavoidable, have structured limits and approval processes so they’re used strategically, not impulsively.
- Embrace Selective Customer Loss – If a buyer only values price, they may not be your ideal customer. It’s okay to walk away from deals that don’t make financial sense.
The Bottom Line
Discounting isn’t always bad, but it needs to be intentional. The next time a customer asks for a discount, remember: maintaining your price could mean working 50% less while earning the same profit.
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