Don’t Sell Yourself Short
Tips to Avoid Discounting Dilemmas
During his operational and financial consultation with Tru Vue® Retail Boot Camp winners Rene and Larry Bauer, owners of Karon’s Frame Center, Ken Baur, president of KB Consulting, talked with them about a major factor in success for small businesses — controlling discounting. In this second article in the series, Ken highlights ways businesses can avoid discounting disasters.
A unique approach
As mentioned in the last post, Karon’s Frame Center in Port Angeles, WA, was a success story when it came to profitability. Taking a close look at this business, it was clear to me that one of the reasons they did so well was because of their limited reliance on discounting.
The Bauers’ have a well-established discounting policy, offering a 10 percent discount to those in the art community and active military. These discounts are much-appreciated by their customers, but they result in only a one percent discount rate for Karon’s Frame Center when the industry average is 18 percent.
Karon’s Frame Center is one of the most profitable smaller businesses I have worked with as a consultant. What is interesting about this is that Rene and Larry took over this established business in 2010, two years after those of us in the industry experienced the major hit of the economic downturn. At a time when many custom framing businesses were resorting to discounting more frequently to retain sales, the Bauers decided to take a different approach.
“I observed that we had a lot of work coming in but that the projects were simple,” said Rene. “We weren’t making much money. So I began to think about how we could get back to the roots of what the industry is. We were not just a frame shop. We were a custom frame shop.”
Rene’ was on to something very important in the custom framing industry. As the economy squeezed customers’ wallets, shops felt the need to compete on price. Given that sticker shock is always present in our business, this focus on price became even more compelling. In the effort to avoid losing sales, many shops were making sales that were not profitable because of discounting that was not sustainable.
It is impossible to run a business on sales that bring in no profit. Unfortunately, concerns about losing customers based on price clouded many shop owners’ judgment. There is no doubt that discounting is one of the reasons some shops in our industry are having difficulty surviving.
In addition to not being sustainable, discounting attracts customers who are more focused on price than design. It also leaves customers with the impression that your regular prices are too inflated. Many businesses like Karon’s Frame Center have shown us that you don’t need discounting to survive. Following are three ways to avoid discounting and strengthen profitability.
Have confidence in your pricing
In talking with Larry, I was happy to hear about the level of confidence he has in the shop’s pricing as it pertains to the quality of their work. Design driven sales is a key to resisting the pull to discount when standing at the design counter with a customer. “As a consumer myself, I just want to know that I am getting the best product for the best money, and I don’t have to worry about whether I’m getting a deal or not,” said Larry. “That’s the philosophy that we’ve used in our shop.” Part of having confidence in your pricing is knowing your pricing structure. If you know what you need to charge to cover your expenses and make a reasonable profit, it will be easier to stay firm with your pricing.
Establish a discounting policy, stick to it, and track it
Rene’ and Larry chose the art community and active military for their discounting policy. Offering special pricing for local artists is common with many custom framers. Others will periodically reduce clearance stock or give price breaks for framing multiple pieces. The point is to make sure you won’t discount so much that you ruin your profitability and that you don’t discount outside of your policy. Tracking your discounts is the best way to see how much you’re discounting and help yourself stick to your plan.
Keep the custom in custom framing
Referring to what Rene’ said, custom framing is more than just mounting a piece of art, putting a frame around it and covering it with glass. Independent custom framers have the craftsmanship, design talent and professional experience to preserve, protect, and display personal treasures in a unique way. Customers value these qualities, and it is the reason they choose custom framing over other options. I refer to this as design driven sales, you can read about this in more depth by reading this earlier post Growing Your Average Ticket by Design.
By recognizing the importance of limited discounting, the Bauers are running a successful business with an 18 percent gross profit. Use these three tactics to keep your discounting in line. Check back for the third article in this series as we continue this overview of topics in pricing.