The Illusion of Discounts

“I am ready to purchase but you will need to sharpen your pencil a bit?”

It’s a line every salesperson hears.

Too often, the answer is, “Sure, I’ll knock 5–10% off.”

But here’s the real question:

Does your team actually understand what that discount does to gross margin, gross profit and the long-term health of the business?

For many organisations, the honest answer is no. 

Revenue is Vanity. Margin is Sanity.

On the surface, a discount looks like an easy way to win a deal, hit a monthly target or keep a customer happy.

But underneath, this can be happening:

• Revenue goes up

• Gross margin erodes

• Profit per sale shrinks

• The business quietly absorbs costs it never priced for

Simple example:

If you sell a product for $1,000 and it costs you $700 to supply, your gross profit is $300.
Give a 10% discount (price now $900) but your cost stays at $700.

• Gross profit per sale drops from $300 to $200

• You now need 50% more sales to make the same gross profit as before

That’s the part many salespeople never see.

The Hidden Costs Behind Every Sale

Most sales teams think in terms of price vs cost of goods.

But true cost is far broader. Each sale often carries a slice of:

• Overheads – rent, admin, salaries, vehicles, IT, insurance

• Cost to serve – freight, warehousing, installation, commissioning, after-sales support

• Warranty & rework risk – call-backs, replacements, site visits, “goodwill” fixes

• Finance costs – extended payment terms, bad debts, interest on working capital

• Marketing & acquisition – lead generation, advertising, promotions, tendering

• Compliance & regulatory burden – licences, audits, mandatory training, product testing, safety standards, reporting, documentation

Every time a salesperson discounts without understanding those layers, they’re effectively giving away not just profit – but your ability to fund compliance, service quality and future growth.

Who’s Paying for Compliance and Red Tape?

Most industries are seeing an increase in:

• Safety and product standards

• Environmental and sustainability obligations

• Consumer law enforcement

• Reporting and documentation requirements

Those obligations aren’t optional. The business has to:

• Test and certify products

• Maintain records and systems

• Train staff and supervisors

• Respond to regulators and audits

If those costs aren’t built into your pricing – and protected in your gross margin – they end up being funded out of already thin profit.

In other words, every unthinking discount is a quiet transfer of money from “future safety and compliance” to “today’s sales target.”

That’s not a sustainable strategy.

Why Salespeople Need to Understand the Financials

Too many organisations still treat sales and finance as separate planets.

Sales is told: “Go and sell.”

Finance is told: “Make the numbers work.”

The problem is, most discounting decisions are made in the field, not in the finance system. That’s where the damage happens.

Salespeople don’t need to be accountants – but they do need to understand:

• Profit & Loss (P&L):
  How discounting reduces revenue, gross margin and ultimately net profit.

• Cost of Goods Sold (COGS):
  What truly sits in COGS, and why “it only costs us X” is rarely the full story.

• Gross Margin vs Gross Profit:
  Why % margin matters, and why a small reduction in price can have a large impact on profit dollars.

• Balance Sheet impact:
  How heavy discounting can lead to tight cash flow, higher debt, slower inventory turns and increased credit risk.

Once salespeople see how their pricing decisions show up in the financial statements, their behaviour changes.

They stop thinking, “It’s just 5%,” and start asking, “What does this do to our margin and our ability to reinvest?”

Building a Smarter Sales Strategy Around True Costs

If you want discipline around pricing and discounts, you need more than a policy doc. You need a shift in how the business thinks about value and cost.

Here are some practical steps:

1. Educate Sales on the Numbers

• Run short, practical sessions explaining P&L, COGS and margin in plain language.

• Use real product examples to show how discounts affect required volume and profit.

• Give your team simple margin calculators or tools they can use before agreeing to a discount.

2. Define Clear Discount Boundaries

• Set maximum discount limits by product, segment or deal type.

• Require approval for discounts beyond a certain threshold.

• Align incentives so salespeople are rewarded on gross profit, not just top-line revenue.

3. Price for Compliance and Complexity

• Explicitly factor compliance, regulatory oversight and after-sales support into your pricing models.

• Don’t treat these as “overheads we’ll worry about later” – they are core to delivery.

• Make sure sales understands that “we’re not just selling a product; we’re selling a compliant, supported solution.”

4. Segment Your Offers Instead of Defaulting to Discounting

Sometimes the customer truly can’t afford the full option. The answer doesn’t always have to be a price cut.

• Offer tiered solutions (good / better / best)

• Adjust scope, inclusions or service levels

• Use time-limited promotions funded and planned in advance – not ad-hoc “please the customer” discounts

The Real Question for Leaders

If your sales team can freely discount but can’t confidently explain:

• your gross margin targets,

• your true cost to serve, and

• how compliance and regulatory costs are recovered,

then you don’t have a sales strategy – you have a hope strategy.

In a world of rising costs, tighter regulation and increased customer expectations, hope isn’t a business model.