Here's How To Stop Giving Profits Away

At a home accessories and furniture store I saw a couple of large metal wall pieces I liked for my office. This place looked like a family-run operation. The owner saw my obvious interest in one, came over, and asked if I liked it.

I tried not showing too much emotion and asked how much better he could do. His reply was brilliant:

"These are almost double this amount at Robb & Stucky's (a high-end furniture store in Scottsdale). You can have it for only $295."

Great answer!

I'm always prepared to pay full price, but I also like to ask for the sport of it, and, well, because it works. So I then said,

"How much better can you do if I also get that one over there," pointing to a similar piece on the wall.

I expected something solid like, "Same thing with that one. Together, you'll double your savings from anywhere else."

Suddenly, though, he turned into a different person. He caved in, saying,

"Ah, well, OK, I can give you $75 off if you get both."

He gave away pure profit.

Here's something that's not too profound at first glance:

"A dollar in cash money or credit that you give away is always a dollar of lost profit."

However, this has enormous implications when you put it in the context of price objections, negotiations, and concessions, and also special offers, discounts, and incentives to purchase.

And with that context in mind, here's another piece of wisdom:

"The perception of the value of what you give away- in the mind of the receiver-can be greater than its price tag."

OK, so what does all this mean?

Here's an example. A printer had missed a deadline date for an order. It caused me inconvenience. In the past I've had printers who knocked something off the price when they screwed up. Instead, she apologized profusely, and recovered with this:

"Here's what I'm going to do for you. I've run 20% more than what you ordered, no charge. And the next time you do a black and white printing job like this, I'll throw in a second basic color at no charge."

If she would have knocked $100 off the bill, that would have cost her $100. I imagine she probably has to do at least $400 worth of business to make $100 net profit. Instead, she offered to give me 20% more than what I ordered, which cost her very little, since she probably ran 10% more than what I ordered anyway and would have just wasted it, and her additional cost was essentially just for the paper.

As for the second color on the next job, not only is that a clever way to ensure future business (kind of like having a gift certificate-who hasn't made a shopping trip to redeem it even if we didn't need anything?) but it also had a high perceived value to me because it's something I normally pay for.

Her only cost is to run the job through the press a second time, and for the colored ink (which she'd likely have on the press for another job anyway); again much less than the perceived dollar value.

Think of how you might be able to use these ideas to avoid giving away dollars in cash, and persuade people to buy, or buy more quickly.

Here are some ideas.

Understand what's important to them. Of course, all selling gets back to this. Money often takes a back seat to other priorities. For example, if you're in a price negotiation and you also know the buyer is under a time crunch, you could offer quicker delivery instead.

Give product instead of dollars. Instead of dropping price, throw in some additional products. Give them something they're not buying from you now. It gives them the opportunity to test something out, which could lead to future sales of that product. This also works great if they are a reseller. They can then make a profit from what you give them. Also, the actual retail price of the product could be much greater than the concession or discount they want, but your actual cost is lower.