Well, it’s that time of the quarter again, when sales reps start calling and trying to make deals so that they can close business and meet their quotas or secure their bonuses. Most are willing to give an extra 5–10% off on any deals that can get closed by the end of of the quarter. I certainly understand the perspective of the sales reps, and I would never want to be in that position. However, as a way of doing business, this has always seemed like a bad idea for several reasons:
- You open yourself up to being played by dealers. Let’s say that I have an order for $100K that comes in today. Rather than just place the order, I’d be smart to hold it until later in the month and then tell the sales reps for various makers involved in the project that “I might be able to close this deal, but they only have X dollars in the budget. If you can get me another 20% off, I’ll do what I can to try to close it.” Of course, if they come back with 20, 15, or 10 more off, it doesn’t really matter. I’d place the order with the maximum discount I can get, and then pocket the difference for myself.
- If an extra 10% would close a deal, then why not do that back in January? Or next month? Are we losing deals in other months because we don’t have the opportunity to get better pricing?
- Looking long term, think of how many hundreds of thousands of dollars in profit are given up by Sales reps in order to close a deal by a certain deadline. That money could have been used to provide each dealer with more demo resources, more joint marketing efforts, helping with lead generation, etc. Or even just to market the brand as a whole direct to customers, increase name recognition, etc. Is inflating your sales this quarter worth the loss in capital that you could use to really grow your market?
- By moving business that would have come in during Nov and Dec to January, these reps are just accelerating the pace of sales quotas that they have to meet. It is like the Red Queen in Alice in Wonderland: “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!” What happened to slow and steady winning the race? You might have steady growth in sales as measured by units, market share, etc, but by cutting your margins to make the deal happen now, your revenues and income might be showing a decrease.
- I’m also not sure how this comes off to customers, when dealers are calling with special offers to close a deal by the end of the month. Not all businesses work like this and I’m sure to some it comes off as more of a sleazy salesman pitch. For the long term, you want to establish a relationship of trust with the client. Saying that you can give them a deal right now, but not earlier or later, might cause them to wonder if you are really giving them a fair price on a regular basis.
- The argument for increasing sales in a given quarter/year usually has more to do with the competition. “We need to show that we are doing better than Company X.” “Company X will beat us up in the press if we don’t have a good quarter, etc.” I have never thought it was a good idea to be that concerned about your competition. They will always be trying to create FUD about your products in the mind of your customers. Are the short term gains worth the long term losses? Isn’t it better have some $$ to reinvest in your R&D, overall sales efforts, etc.
Originally published at https://www.christiansonjs.com.