Discounting as a way of doing business is great for the client though it may also cause the client to lose confidence in the cost benefit and value proposition of the service offerings of your business! Remember that the client may feel you are charging too much if you can afford to discount your service offerings.
This is hypothetical example of how discounts impact the bottom line of the business.
In this simple example we use an average Repair Order sale amount equaling $200.00 ($100.00 Labour and $100.00 Parts)
Minus the Cost of Sales equals $25.00 to pay the technician and $65.00 to pay for the wholesale cost of the part.
The Gross Profit equals 75% on Labour equaling $75.00 and 35% on the parts equaling $35.00 for a subtotal of $110.00.
Minus Overall Personnel Expenses that are 45% of the labour equaling $33.75 and 42% of the parts equaling $15.00 leaving a subtotal of $61.25.
Minus Semi-Fixed Expenses at 19% of the labour equals $14.25 and 13% of the parts equaling $4.80 leaving a subtotal of $42.20.
Minus Fixed Expenses at 16% of labour equals $12.00 and 12% of the parts equals $4.20 leaving a subtotal of $26.00
Total of All Expenses now is $ 60.00 of Labour $24.00 of Parts
Leaving a NET PROFIT of $15.00 on the Labour and $11.00 on the Parts for a GRAND TOTAL of $26.00.
Now if you wish to apply a 15% discount to the Repair Order it will come out of the NET PROFIT.
So let’s break it down some more.
Assuming a 15% Discount from Labour is $15.00 this will leave a NET PROFIT of ZERO.
Assuming a 15% Discount from Parts is $15.00 this will leave a NEGATIVE BALANCE of -$4.00.
So this Repair Order COST the business NEGATIVE $4.00 to produce once the discount is applied.
And you should now understand that discounting is never the way to make for a profitable business???