The price you set for your goods and services is deeply personal to your Middle Market firm. Also, it likely took a while to tweak and get exactly right. Pricing covers more than just your costs of the raw materials. It encompasses the cost of developing, producing, marketing, selling and delivering your product and services. Also pricing has to help your company grow through profits, pay your employees and keep the lights on.
When you’ve set a price and someone asks for a discount, it can be frustrating. Exponentially so when a customer has big muscle behind their request. If a buyer can guarantee a large number of sales regularly, it can seem like a load off your shoulders – at least initially.
Let’s say a customer can guarantee half of your sales goals for a year but wants a hefty discount. On the one hand, you’ve got built-in sales so you can cut back on prospecting and business development.
The Other Side Of The Coin
It may be tempting to agree to this deal. You could focus more on production and meeting the needs of a large client. Plus, you can stop worrying about hitting your sales goals and there is likely a chance the relationship with this customer will grow and deepen.
What’s on the other hand though? For starters, you are taking a loss or at least reducing your profit margins by agreeing to the deal. Is your company able to withstand the difference or are you going to have to start cutting corners or worse yet, look at losing employees, etc?
Secondly, the customer is now taking up the lion’s share of your time and human capital resources as well. You’ll have to meet their deadlines and production demands which may tie up your production almost completely. Will you be able to produce enough for other clients or stay ahead of the game enough to look for other clients?
Lastly, if they did it once you’d be shortsighted to assume they wouldn’t look for more discounts and deals in the future. Will you be able to recoup your losses? Will they strangle your production down to the point you really can only service their needs? In the future, will they threaten to find another supplier if you don’t meet their demands?
Can You Decline?
As tempting as this situation looks, when you reflect on the many ways your Middle Market company would potentially be negatively impacted, it could be clear that you want to say no to the potential customer.
It can be scary to contemplate turning down a sure thing, but after evaluating everything, your answer is probably pretty clear to you. But, can you afford to say no?
Typically, yes. If a client becomes more of a bully or more threatening during your negotiation phase, you have a pretty good idea what they will be like to work with all the time. Could they potentially ruin your company if you say no? Potentially.
But, why would they bother getting into a protracted fight– which would inevitably turn into a legal battle – because you declined their terms? Price bullies don’t want to put you out of business, they just want to use their clout and size to intimidate you into more favorable pricing.
When you are approached about lowering your prices because of the promise of sales quantities, make sure your Middle Market organization evaluates all the ways you would potentially be affected before you say yes or no.
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