Matching Your Passions With Profits:
Avoiding Discount Disasters
As part of the Tru Vue® Retail Makeover, winner Sheri Wright sat down with Ken Baur, makeover consultant and president of KB Consulting, to review the financial side of Sheri’s business at her shop Fourth Corner Frames and Gallery in Bellingham, WA. Ken’s work with Sheri inspired, Matching Your Passions with Profits, a series of articles with advice on how to improve profitability and create a sustainable business that enables custom framers to keep doing what they love.
Discounting is one of the biggest barriers to profitability. You may be surprised to learn that custom framers tend to discount at an average of 18%.
Discounting is one of the biggest barriers to profitability for custom frame shop owners. You may be surprised to learn that custom framers tend to discount at an average of 18 percent. In fact, many custom framers have no idea to what degree they are discounting. Consequently, they are often in the dark about its impact on profitability. This practice is not just an issue for custom framing retailers.
According to the U.S. Small Business Administration, many small businesses feel the pressure to stay competitive and often turn to lowering prices to do so. In my experience working with hundreds of custom framers across the country, there are three main reasons why they discount:
- They feel the need to match prices of competitors.
- They resort to it during the sales process to avoid losing a sale.
- They assume they are charging too much or that their customers can’t afford what they are offering.
Discounting can become a disaster
You may recall from our first article in this series I introduced three shop examples, A, B, and C. Shop B is a perfect example of how too much discounting can lead to negative returns. The owner was in good shape in terms of pricing but, resorted to cutting pricing for fear of losing sales. This owner had a lack of confidence in the pricing, and customers began to expect discounts. This created a cycle that had a significant impact on profitability. Here are 3 other ways discounting can be a disaster when it comes to running a sustainable custom framing business:
- Focusing on low prices attracts a particular type of customer.
Playing the price game means that you will compete for customers who are focused primarily or only on price. This is a problem for custom framers, who are expected to provide an individualized product with quality materials, thoughtful design and personalized service.
- Regularly lowering your prices says something about your work.
If customers are always offered a reduction, they will assume that your prices were too high to begin with. Promoting low prices can leave an impression that what you offer is of an inferior quality compared to the competition.
- Discounting is not sustainable.
When lowering pricing to make a sale becomes a regular practice, it creates a cycle that eats into profits and can eventually make a business no longer viable
Ways to avoid issues facing these disasters
- Discount strategically and sparingly
Define who will receive discounts and stick to your plan. You might consider discounts for projects with multiple pieces or for customers who purchase at a certain rate each year. Reducing stock you want to clean out is another opportunity for offering lower prices.
- Identify and promote your Unique Selling Proposition (USP)
Most businesses aren’t differentiated by price. If they were, then the only stores in business would be those that could survive with rock-bottom prices. Your USP is what makes you stand out from your competitors. It might be your design work, preservation expertise or exceptional service. Click here to learn more about USPs by reading the article ‘How Consumer Insights Can Inform the Unique Selling Proposition’. Get to know the customers you want coming into your shop. Customers who value expertise, personal service, and quality craftsmanship are likely those you want to attract. Research shows us they are out there. Target those customers with your USP instead of price. Click here to read ‘Who Your Customers Are… And Who They Could Be’.
- Understand your pricing structure
If you know that the prices you are charging cover the cost of materials, your operational costs, and a reasonable profit, you will feel more con dent communicating them to your customers.
- Track your discounts
We will go into more depth on this in future articles, but tracking how often and when you are discounting helps make you aware of to what degree you are doing it. This is valuable information in determining how much of an impact it has on your business and can serve as a starting point for changing it. The good news I have found is that shops I work with generally do not experience an overall downturn in business by reducing their discounting. In fact, though they may see a slight increase in customers who walk away from a sale due to price objections, their profitability increases because they are pricing their projects right and retaining clients who appreciate what they have to offer.