David Brown: Keep Tabs on Discounts

You may be giving away hundreds of dollars every day

BY DAVID BROWN

Published in the April 2013 issue

When we consider all the areas of business that are accounted for, discounting is often the one least monitored — yet it can be one of your biggest costs of doing business. Depending on how your financial reporting is set up, most businesses don’t track their discount as part of their profit and loss — it is normally reflected in a lower sales figure rather than being singled out.

If you have a solid reporting system, it is easier to track these figures, but the question is, are you? How much time are you spending checking your reports to determine the level of discount being given away?

The first step to controlling your discounting is to manage it, and as the old saying goes you can’t manage what you don’t measure. If you want to manage your discounting then the only effective way is to look at it on a daily basis. Why? It’s relatively easy to identify a discount on an item the day after the sale — a lot harder to get a staff member to remember something that happened three weeks ago.

By managing it daily, you can take huge strides toward reducing unnecessary discount leakage that may be happening. That still leaves the discount that staff members feel pressured into giving — and reducing this is not easy, but you can take steps to minimize the impact of discount requests from the customer:

If a customer asks for a discount, don’t offer one straight away. Fifty percent of customers will accept it if you explain that this particular item can’t be reduced. This will halve your discounts immediately. Those who won’t accept it won’t walk straight out the door. You have an opportunity to deal with them as outlined below:

Offer an alternative, such as a voucher (which will cost you less and bring them back in-store) or a discount on an alternative item with more margin, or one that you really want to get rid of. You’ll be left with the 10 percent of hard-core bargain hunters. Don’t give in straight away here either! Many enjoy the challenge and will, in fact, be suspicious if you give in too easily. Offer a level less than they are asking and many will accept.

You’re nearly there! If they are still insistent, give them what they want (within reason). It is better than losing the sale. By following this strategy and training your staff in this manner you will cut your discount level by hundreds of dollars each day!

Discuss the daily discount with the staff. One store that let its staff know the amount being given away each day, and named the amount given away by the heaviest discounting staff member (but not revealing the name — that person knew who he was by seeing his own sales reports) saw an immediate drop in the willingness of staff to discount and a sizeable reduction in the amounts given away.

David Brown is president of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. For further information about the Academy’s management mentoring and industry benchmarking reports contact inquiries@edgeretailacademy.com or Phone toll free (877) 5698657