Business Advice… Stop Discounting and Start Increasing Value!

Discounting if used properly can be an effective strategy to increase profitability and cash flow, but if not used properly it can cause serious consequences to the growth and profitability of your business.

Most of the time discounting is a gut reaction to a slowdown in business.  Businesses find it easier to discount the value of their product than to sell on value.

One of the biggest negative consequences of discounting is that we are training our clients to buy only on sale.  This can have a big affect on our bottom line.  I’m not really sure a business understands how much more they have to sell just to stay at that same profit level.

For Example if you have a…

30% margin
You discount your product or service 10%
You will have to sell 50% more to make the same amount of money.
Contrast that with…

If your margins are 30%
You increase your prices by 10%
You can sell 25% less and still make the same amount of money.
Now isn’t that interesting…

Discounting is an appropriate strategy if your inventory is high and you need cash to pay bills or if it’s a perishable item that you will have to throw away.  However instead of just discounting your product, use it as an incentive for your customers to purchase more.

Let’s assume you have a product that costs you $5.00 and you sell it for $10.00.  If you were to have a sale of 25% off, you would now be selling it for $7.50 and only making $2.50 instead of $5.00.

Instead of discounting the full price you can have a buy one get the 2nd item at ½ price.  Now you’ll at least be making the same $-profit if you sold 1 at full price.  Another option is a buy 3 get the 4th free.  You are in essence still providing a 25% discount but you are now making $10.00 profit per sale instead of just $5.00 if you sold just 1 item.

The advantage here is that you are moving more inventory and turning it back into cash.

When it comes to marketing, “perception is reality”.  If you have a 25% off sale you become labeled as a discounter.  If you have a buy 3 get the 4th for free sale, or buy 1 and get the 2nd item at ½ price, you now are perceived as a place where you get more for your money.  You are now distinguishing your business from your competition by providing adding value to your customers instead of being viewed as just another discounter.

5 Tips to Instantly Grow your Cash Flow

Profit and cash flow are not the same.  Profit is just a theory.   
A business can go broke by not setting aside enough financial reserves to meet its commitments, even while making a healthy profit.  

Here are five ways from ActionCOACH founder Brad Sugars' book Instant Cash Flow to supercharge your cash flow:

1. Sell More Big Margin Goods/Services …
   Why not move to products that offer bigger profit margins?  Can your business offer a slightly more expensive product on which you can make a higher profit?  Or can your business buy or produce smarter to make available more goods or services with lower prices and greater profit margins?  You should know exactly how much each product nets you, and emphasize those products which make you the most money.  If you work in the service industry, you should consider which services offer the most money for the least amount of time spent.
2. NO Discounting 
   If you constantly discount, why have a regular price?  Many businesses are always discounting instead of coming up with effective marketing, or an actual reason to buy their product.  Discounting not only costs you money, but gives the impression that your normal prices are a rip-off.  Customers may also hold off buying, thinking that the item that's $100 today may only be $80 tomorrow.  It's better to not discount and simply offer more add-on value.
3. Stop Running Ads that Don't Work …
   If your ads aren't making you money, then stop running them!  It is important to test and measure each ad to make sure that you're getting the maximum return possible.  Be sure to find out how many customers were referred to your business by your ad.  When you find an ad that works, keep using it.  It may take six months of testing and measuring before you find the right ad.  You need to view this outlay as an investment in your business -- it's an investment in finding out what works and creating that 'magic ad'.
4. Re-finance …
   If you have a number of loans, then you may need to consolidate them into one.  Consolidation gives you the advantage of paying only one interest rate and having one repayment.  Shop around to find the best terms.  The best terms don't always mean the lowest nominal rate, so make sure you choose the loan that suits your particular needs.  With banks becoming more and more competitive, there's a bank out there willing to give you a loan for less.  If your bank isn't willing to match their rate, then try another.
5. Where's the "Silver Bullet" in your business?
   Every business has something that they are doing (or not doing) that - when attacked - will generate instant cash flow.  Brainstorm with your employees for products that can generate instant cash flow.  Talk to your mentor, business coach or experts in your industry with which you have relationships.  Let them help you find the hidden dollars in your business that will allow you to move to the next level.

Looking for more ideas to increase the value in your business to make it sellable one day?  

Take this quick 15 questionnaire to learn how valuable your business in right now and the 8 areas to work on to begin increase its value today!  www.actioncoachsellabilityscore.com