Discounting is like dynamite because it is both useful, and it destroys value. It’s a pricing tool that is best handled with caution, with formal controls in place. Unlike dynamite, the best control for discounting is friction. If you deliberately add a little bit of friction to the approval process for discounts, you will get less discounting, guaranteed. For instance, set the limit that a salesperson can discount before talking to their manager at 10% and you’ll see an uncanny number of deals close at a 10% discount. It’s just human nature. But add too much and make Sales angry and they will end up circumventing you and undermining what you’re trying to accomplish. So it is important to mind the balance. My recommendation is to use the cost-plus pricing method to create price floors to prevent bad deals from losing the company money instead of making it. Then implement a deal desk to handle discounting that is above the price floor threshold where the answer is always no.
Here is an example of a basic deal desk structure:
The intent in a deal desk is to apply increasing scrutiny and friction to deals as the escalate from the lowest risk quadrant (small deals with low discounts) in the bottom left to the highest risk in the top right (large deals with high discounts). There can be far more boxes than four and more definition needs to be added for your company as “small deal” is not specific enough to be an approval rule, but you get the idea.
Keys to a deal desk
The keys to a deal desk are guardrails, both in terms of which deals need approval by who, but also how those deals will be examined for approval. The best practice is for a financial analyst or sales operations analyst to examine the deals that need scrutiny beyond sales leadership with a specific set of metrics to measure the deal with and what is in bounds for negotiation. The second necessary element is an established workflow that will put the deals that need to be analyzed in front of the right people. Best practice is to use Salesforce to automate the identification of deals needing approval, routing of these approvals along with alerts to let them know. However, this takes some work so start with a basic set of rules for reps so they know which deals to self-flag and have them email a handle like dealdesk@yourcompany with the appropriate people on the distribution list. Implementing these two fixes alone could improve your effective prices of products sold by 10% or more.