I generally agree that discounting is often counterproductive, and
except for active duty military, police officers and other first
responders (people who have volunteered to run into burning
buildings to rescue people they don’t know) I seldom do it. Unless it
is something that has been sitting around a while. If it’s been in my
case for more than six months or a year and someone is finally
showing some interest, I’ll definitely let it go for less than the
marked price. I need to get that money out of its sleepy place and
put it into something that will sell.
I won’t go into the details about why this is a sound business
practice (a quick search of basic business administration lessons
will bring up reams of text written about it), it is important to
keep your inventory moving. The rule of thumb for jewelry is that
inventory should be turned at least once, preferably twice a year.
In other words, if you have $1000 worth of inventory, you should be
selling $2000 a year. Anything that you own that’s older than a
year, is costing you money. Keep it for two or three years, and it
has cost you more than the 20% you refuse to discount it. It costs
you because it’s keeping money tied up so it can’t be used to buy
things that will sell faster, without discounting. On the other hand,
hot sellers - things that do turn once or twice a year or more -
shouldn’t be discounted, they should be replaced as quickly as
possible.
Managing inventory turn is absolutely critical to running a
profitable business. Discounting is often the grease that keeps the
wheels turning. Why do you think major shoe stores will sometimes
sell $200 shoes for $50 (well below their cost)? They need to cut
their losses and buy stuff that will sell, not gather dust. These big
companies don’t do anything by mistake, including discounting. Notice
also that their hottest sellers (the ones you really want) are never
on sale.
I don’t discount custom work or repair work generally, but I’m
sometimes a sucker for a hard luck story. I try to give something
important away to someone that is truly in need or deserving at least
once every four months. I find it’s good for my soul.
I guess what I’m trying to say is that the worst business advice I
ever got was - “Never Discount”. Never is a really long time, and
sometimes it’s just the right thing to do. For a myriad of different
reasons.
A good way to handle it when someone asks for a discount on a hot
seller or something new (neither of which you should discount) is to
show them something similar you have that you wouldn’t mind
discounting. If they continue to give you a hard time, tell them that
if you still have the item they want in a year, you’ll be happy to
give them a discount, but until then, you just can’t afford to.
By doing this, you keep your integrity intact by showing that you
value your work and at the same time, that you’re a pragmatic
businessperson. You also put them in a position that they must decide
whether to risk that it’s something other people will find just as
cool as they do and whether someone else might be willing to pay full
price before you’re willing to discount it. If they are looking for a
bargain, you showed your willingness to bargain with them and maybe
you’ll get rid of something that’s costing you money. More often that
not, I find that they’ll buy what they really want at the marked
price, but they’ll feel better about it.
Everybody wins. That’s the secret to successful negotiation.
Dave Phelps