If you had $1 million to invest in your business’ growth, how would you invest it? What could you do? What would be the savviest, highest ROI way to allocate that capital? It’s fun to dream about, right?
What if I told you that you have already made a $1 million capital allocation decision* unbeknownst to you? That you had abdicated a $1 million capital allocation decision to people on your team who are ill-equipped for such a decision and worse yet, largely driven by fear?
What am I talking about? Discounting. Consider this: discounting is a form of capital allocation.
Companies “invest” discounts to customers in the hopes of generating a return in the future. In the best-case scenario, strategic, dispassionate, surgical price concessions generate positive results. The far more common scenario is fear-based, reactionary discounts… caving to customer price pressure netting no incremental benefit and often a detrimental impact on profits.
“Reactionary” and “fear-driven” are not key ingredients to thoughtful, effective capital allocation decisions.
Every discount dollar is a profit dollar that would otherwise be available for thoughtful allocation.
Doug Butdorf, Senior Pricing Consultant at Boost, has been exploring this concept with hundreds of CEOs over the past 18 months. Doug’s questions to CEOs: why are you abdicating this business-critical decision to front-line salespeople making enormous capital allocations in the form of discounts to customers? Was that money well invested? Or was it wasted?
Is every discount a mistake? No. Do most organizations apply the same thoughtful consideration to their discounting process that they do to other capital allocation decisions? Also no.
Provide as much support in pricing decision making as you do for other capital allocation decisions in your business. If your discounts outweigh other allocations, then your biggest allocators are salespeople, and most likely the least skilled, most fearful salespeople on your sales team.
If you need to equip your sales team to make better pricing decisions and allocate less capital to unwarranted, fear-based discounting, we can help.
*For some businesses, it’s much, much more than $1 million. For some, it’s less. For all, it’s substantial.