Price and value economics

The Discount Machine

Every discount is a promise to sell more. Nobody in the meeting says how much more. Slide the two numbers and find out.

30%
10%

To make the same profit, you now have to sell

50% more

A 10% discount at a 30% margin leaves 20 points of margin on every sale. Same profit needs half as many again.

The other direction: raise the price by the same 10% instead, and you could lose

25% of your volume

and still make the same profit. Which is why the conversation about value is worth having before the one about price.

Before you discount

Two moves that are almost always better than taking money off the price. The first costs you less than margin. The second costs the customer something too.

Give something cheaper than margin

  • A day of training or onboarding. Your cost is time; their perceived value is high.
  • Longer support or warranty.
  • Hold the price for three years. Certainty is worth money to them and costs you nothing today.
  • Take scope out to hit their number, rather than price off the same scope. They usually discover they wanted it.
  • Better payment terms. Same price, sixty days.
  • The priority delivery slot.
  • A smaller first phase, at full price.
  • A low-cost, high-perceived-value extra, bundled in.
  • Fixed-price certainty. You absorb risk, not margin.

Trade, never give

  • A written case study and the right to use their logo.
  • Three named introductions to their peers.
  • Two reference calls a year for your prospects.
  • A testimonial on video.
  • A link from their website, or a listing as a partner.
  • Annual payment, upfront.
  • A multi-year term.
  • A volume commitment, with the discount clawed back if they miss it.
  • An introduction to another division or region.
  • Preferred-supplier status.
  • A slot at their event, or a joint webinar.
  • Design-partner access to their team for product feedback.
  • A signature before the quarter closes. The honest version of the oldest trade in sales.

The rule in one line: nothing comes off the price without something coming back across the table.

Revenue, profit and margin are not the same

Gross profit is margin times volume. A discount comes straight off the margin, so the volume has to climb to fill the gap: the required uplift is the discount divided by what's left of the margin. At a 30% margin, 10% off means 50% more sales. At 20%, the same discount means doubling. And once the discount reaches the margin, no volume on earth gets you back. You're paying customers to take it away. Make sure your sales teams understand this before giving away a discount.

Simplified on purpose: gross margin only, no fixed-cost recovery, no volume price breaks. If anything, reality is worse. If you really want, I can build a model specifically for your company if you show me your accounts: Richard@brxconsults.com.