why cutting your prices is like cutting your own throat
It’s the oldest sales manoeuvre in the apple…

And one of the worst…

Price cutting.

Before you accomplish your abutting price cut in the face of sales resistance, the catechism you accept to buzz yourself is not, “Does it assignment?,” but rather, “Can you alive with the bargain?”

Here’s a pop quiz: you – in your role as salesperson – action for the close. You buzz the prospect to accomplish a commitment and they don’t. What’s your aboriginal response?

Able-bodied, if you are according to most bodies in a selling bearings – whether you are the hired sales guy or the CEO-your aboriginal response to bodies not buying-for whatever the astuteness-is to add, “Would you buy if… ?,” and the “if” is always some variant of, “…if the price was lower?”

And you buzz it almost before you buzz them WHY they won’t buy.

And it’s not alone when they acquaint you they won’t buy. Abounding bodies in sales mentally calculate the discount into their profit calculations, and alpha discounting even before they ace shot to close the deal. In almost every sales action that I’ve worked in, bodies faced with an borderline-of-quarter crunch to “accomplish the numbers” alpha playing the discount pastime. In abounding industries, it’s alter to accepted practice to accord away all the profits, and abounding customers are trained to expect it.

Agitation is, bodies are not usually ‘not buying’ as your price is too aerial.

If you’ve taken the agitation to authorize the absolute of your product or service, you – and your prospect – already apperceive that the amount far exceeds the price you are asking. (If not, you bigger action back and rethink the math.)

So if they are saying “no,” or simply not saying “affirmative,” it either means they are experienced buyers waiting for you to spontaneously cut your price, or it means they aloof accomplish not beam a sufficiently compelling amount…yet.

Cutting your prices will almost never advance to advanced sales if they didn’t aim on buying in the aboriginal abode, and the aftereffect on your profits can be devastating. Chase these numbers:

Let’s add you sell a product for $100. Your cost is $70. That means it carries a thirty percent edge-your profit is $30. Any more, to accomplish a sale, you are “forced” to cut your price by twenty percent. Your advanced selling price is $80. All things being equal, your profit is any more $10-instead of $30. That means a 20% price lessening cost you 66% of your profits.

TWO-THIRDS OF YOUR PROFITS for a 20% price lessening!

Cut your price much added and your profit quickly goes to aught. Or lower.

And that’s not even the worst of it.

Once you lower prices, they tend to stay low. That $100 widget you aloof sold for $80… Able-bodied, sorry to add, but it’s any more an $80 widget.

Even added damaging, your according to-minded competitors will almost definitely lower their prices, and you, my acquaintance, are in a price battle. To achievement in this plot, you charge abysmal pockets to sustain a losing position for the duration.

So for these three reasons-depressed profit margins, permanently lowered prices, and the devastation of a price battle-it’s a bad abstraction to lower your prices to buy bag-regardless of the economic climate.

What can you accomplish instead?

The two main strategies are clarifying and quantifying the amount, and packaging products or services to advance higher prices.

Here’s an absorbing archetype. One of my clients-a software company-had a ardent prospect who didn’t appetite to buy the typical contract for software continuation. They felt that 18% per year was aloof too expensive, and wanted to pament ad hoc instead.

My client knew this was a bad abstraction. Customers without continuation contracts typically alter to your worst. Why? As they apperceive it’s going to cost them each age they pick up the phone for abutment, so they ace shot not to. Thus, they don’t amuse the adapted akin of service, they don’t apperceive how to statement the product and they don’t amuse the results they paid for in the aboriginal abode.

And even though it’s their defect for skimping, they point the finger at you and badmouth your company.

On my advice, my client offered the prospect a four year non-cancelable continuation contract, and gave them the aboriginal year for chargeless. And although it was a 25 percent lessening in total purchase price, it never lowered the per year pricing, and it actually guaranteed added than the prospect’s aboriginal commitment.

Plus, my client locked in that customer for four full age, during which age they rightly expect to sell them supplementary products and services.

Price cutting is the “apathetic man’s” response when it’s adamantine to accomplish sales. Unfortunately, it may not boost total revenues, and results in drastically lowered profits on the sales that accomplish amuse fabricated. Generally the outcome includes permanently reduced prices and margins, and even a price battle, which has disastrous consequences for all players, except actual abysmal-pocketed ones.

Sell the amount instead. Spend the age to ascertain what your prospect is trying to accomplish, and accomplish sure your product or service helps them accomplish that. Then authorize the quantifiable financial appulse, and sell them that. Or parcel, bundle or action for the continued-chat, multi-year commitment.

There are other approaches that not alone advance price levels, but even abutment higher ones. To amuse an overview of those approaches, appointment http://www.lemberg.com/tipsandtools.html and download “5 tactics to avoid price cutting.”

About the author:
Paul Lemberg is the President of Quantum Advance Coaching: Added Profits and Added Action for Entrepreneurs, Guaranteed. To amuse your copy of our chargeless report with detailed steps to abound your bag at least 40% faster, action to www.fastergrowthnow.com





Originall posted February 25, 2012