Leak #8: Discounting, Incentives, Giveaways, and Cave-ins on Pricing – Leaking Profits: Article 11

In the continuing battle at plugging the profit leaks we have to talk about the “deals” we are giving away. You can have the best sales people in the new home sales community, but if you are giving away a lot to sell our homes, then we may find ourselves in a losing battle.

Do you measure the difference between the published price of your new home and the actual sales price? If so, you might just find out that you are making plenty of sales, but very little profit.

Negotiated prices are measured on profit, not gross selling price. For example, let’s say you’re making a $20,000 profit on a $200,000 home. If you knock off 2.5 percent from the selling price—$5,000—you’re actually cutting out 25 percent of your profit. That’s not a leak; it’s a drain!

People are always looking for discounts when it comes to making a major purchase. But when the discussion is all about price, you haven’t effectively communicated the value.
• Show what differentiates your product before discounting.
• Use Differential Demonstration skills that defend the home’s value.
• Be honest! Does your team understand the science of negotiation? Can they protect the bottom line?
• Apply deflective non-negotiation skills to protect profit.
• Manage contingencies.
• If a buyer has to sell his home first, make sure the house is on the market.
• Contingencies must have short duration.
• Verbal offers are meaningless.
• Its just air. If you can’t get it in writing, you have no offer.
• Use options and incentives before discounts, to maintain neighborhood “comps.”
• Hold back premium inventory.
• You might make more money off prime properties later, so hold back the best until last, rather than creaming your inventory.
• Graduated pricing with alternatives: $305, $325, $315
• Defend the neighborhood Comps/Values
• Protecting neighborhood values isn’t just a sales tool, but a moral obligation.

BOTTOM LINE: Any discount should be negotiated against your profit and neighborhood comps, not the selling price.

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