The High Cost of a Low Price

When faced with a tough sale, it is not uncommon to find sales reps that either start with a low price or cut their price during the sales process. If anyone in your organization ever has the urge to sell on price, ask them to review the following 16 consequences of selling on price. When all the facts are in, no business today can afford the high cost of a low price.

Current profits are reduced or eliminated
When you sell price, you cut profits! Without profits you can’t afford to hire qualified people, offer skills development training, provide an on-going customer satisfaction program, or stay in business long enough to honor the warranty.

Future profits are undermined
Low prices lock you into a vicious cycle of low profits! When a customer brags to a friend about the low price they got from you, you may get a call from the friend. . . but be assured the friend will expect the same low price your customer received.

There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and people who consider price only are this manʼs lawful prey.– John Ruskin

You work twice as hard for the same money
If you want to keep the same profits you’d make with a 40 % gross margin and cut your price 10%, you must increase sales by 1/3. If you cut your price 20%, you have to double the number of sales. Do the math and you will find that just a 30% discount requires a 400% increase in sales.

Customer’s expectations are lowered
Price is visual evidence of value! When properly informed, customers use price as a clue about your product and company. A high price can indicate concern for the customer’s welfare and increase their expectations. Low prices create fear, uncertainty and doubt.

Less chance of a quality solution
When there is not enough money in the job, there may be pressure to rush and skip a couple of steps. Cutting just one corner can create problems you and your customers have to live with for a long time.

You may not get paid
Look at your records, the slow-pays and no-pays are almost always price-only buyers. If you’re going to work for free, why not go fishing instead?

No differentiation
When products appear equal, people buy the lowest price! But when given a choice, most people will pay more for your ”solution” if it provides wanted benefits no one else offers. Being different and better is your greatest advantage, don’t lose it. When you’re selling price, you’re selling nothing more than a box . . . and the lowest priced box wins.

Customers may never be satisfied
Again, try going back into your customer records. Take a look at the clients with the highest amounts of complaints, problems, returns, and refunds. Most of the time it will be the price customers who purchased the minimum solution available at the lowest price you were willing to offer.

If it takes more than two or three phone calls or visits to get their problems resolved, there is a high likelihood that you end up losing money on these clients and actually paying them to do business with you. The fact of the matter is, the people who buy your more fully featured products get more of the benefits they are looking for and tend to be happier with their purchase, and your company, long-term.

Profit in business comes from repeat customers, customers that boast about your project or service, and that bring friends with them. – W. Edwards Deming

You buy expensive customers
When you sell price, you get price buyers! One of the price buyer’s greatest joys in life is grinding you down. Many of these folks specialize in performing “profit-ectomies” on unwary price sellers. You know the drill. The phone calls playing you against your competition, the request for multiple sales calls and free consulting, then the plea for a sharper pencil. Before you know it, you’ve got hours invested in a job with no profits.

You’re acquiring unneeded stress
When you sell price, you buy stress! Many price-buyers are irrationally demanding, want something for nothing and can be a great source of long-term misery. Who needs it?

You get disloyal customers
People that always buy the lowest price are always disloyal! The next time they have a need, they’ll buy from whomever has the lowest price. It is impossible to always have the lowest price, because there is always someone willing to do it for just a bit less. When customers are loyal to a company, 99 times out of 100, it’s because of the service or staff. Need proof, just visit your favorite online review or social media website and look for any 5 Star Reviews that mention the “lowest price”.

You get really busy
95% of businesses fail within the first year of operation. For many of them, revenue wasn’t the biggest problem. It’s poor cash flow that can be the kiss of death for companies. The goal of business is not creating work, it is creating profits. Firms that sell price are the busiest the day before they go bankrupt.

You eliminate the price floor
If you cut your price once, people expect you’ll cut it again…and again…and again.

You can lose trust and credibility
When you lose trust, you lose everything! A $300 price cut may send a message to the customer that you were over-charging them by $300 in the first place.

You send the wrong message to employees
Cutting the price of your product or service may be a silent message to the rest of your organization that “the work you’re doing isn’t really worth that much”. When people in non-sales roles see your sales reps cut their price, the message here may be it’s okay to cut corners… “Hey, everyone does it”

Good customers may be driven off
It is virtually impossible to satisfy price-only buyers. The product is never good enough, your service is always too slow. With these customers, minor problems almost always become major issues, which they’ll use to squeeze you some more.
We’ve all heard the phrase, “The squeaky wheel gets the grease”. Many times your price buyers take so much of your time complaining and asking for concessions, you don’t have time to take care of your good clients. Simple neglect is the #1 reason customers are lost.

More than 80% of your potential clients will pay a little more for additional benefits, faster results, and superior solutions to their problems. When all the facts are in, neither you, nor your clients can afford the high cost of a low price.

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