Saturday, September 1, 2007

Discounting…yes or no? (TSF)

Tonight's dinner table discussion was an interesting one. Two of my children work at the same neighborhood coffee shop. The coffee shop had a recent change of owners at the beginning of the year. The new and current owner - we'll call him Sam - is in a bit of a dilemma. After owning the shop for nearly eight months now - he is hard pressed to realize a profit. Of course there is the normal three to five year `curve' that applies to any new business, except, that this business has been open - with a very established customer base - for over six years.

So…what's the problem, you may ask.
As in most businesses, there are a variety of contributing factors - including too many Starbuck's within close proximity. However, a HUGE issue is the practice of discounting for `favorite' customers, established by the previous owner. Sam is now trying to do damage control in order to begin to realize some profit without offending the regular customers. It is a tricky situation to be sure.

I share this story today as food for thought for you and your business. Certainly there may be times when you run special sales for your customers. I would caution the practice of discounting too regularly.
Getting into the habit of discounting does several things:
Your customers will begin to balk when you charge full price and only want to buy when they receive a discount.

It devalues your product line.
As in the case of Sam - it is difficult to reverse once started.
MOST IMPORTANTLY - your business is far less profitable when you discount.

As women, sometimes we have difficulty being paid what we are worth. Some of us feel guilty for taking money and therefore “giving a deal” seems like the right thing to do. Men don't do this. Somehow, they are wired differently - I'm convinced of this. Men don't apologize for things they didn't do (ever notice how often women say I'm sorry for something that they had no part in?). Men don't feel bad about or make excuses for money they are paid for a job done; whether in the form of commissions for sales or fees charged if they are a doctor, lawyer, accountant, etc;. The `why's' behind this phenomenon is the stuff self-help books are written about and not the subject of today's tip.

Just remember - you are in business to make money. If you are not in business to make money - then you probably will find yourself with an expensive hobby. Hobbies cost money - businesses make money…period.

1 comment:

Angie said...

I know that I have had been prone to discount with my other business until someone pointed out to me that it is in my best interest to give FREE product over discounts
(if you feel the need to have a special). For example, free shower gel with an order of "X" amount. That way it is still a deal, but also helps with your own volume.

Also, the man thing is so true. I envy my husband's non-guilty, I-deserve-it ways!