What to do in a slow quarter instead of discounting

“Fifteen per cent off until the end of the month. Across the board.” The owner had the price list open on his laptop, three of his people round the table, and a quarter that was running about 40 per cent behind the previous one. Nobody at the table argued, because nobody at the table had anything better, and a discount at least looks like a decision. That meeting took four minutes. Undoing it took the next two years.

We have sat in that meeting more than once. It is almost always the same room, the same shape, the same relief when someone finally proposes something.

The arithmetic nobody does first

Marn and Rosiello worked out the leverage in “Managing Price, Gaining Profit”, Harvard Business Review, September 1992, and the figures have survived three decades of being quoted at people. For an average company in their analysis, a 1 per cent improvement in price moved operating profit by 11.1 per cent. A 1 per cent improvement in variable cost moved it 7.8 per cent. A 1 per cent improvement in volume moved it 3.3 per cent.

Read that backwards, which is the direction that matters in a slow quarter. Price is the most leveraged thing on your profit and it runs just as hard in reverse. A 15 per cent cut does not cost you 15 per cent of anything. It comes out of gross profit, which for most small firms means it eats a large fraction of the margin on every single sale, and the volume needed to stand still is usually a number you would laugh at if someone wrote it on the whiteboard. Nobody writes it on the whiteboard.

Then there is the part that outlasts the quarter. Existing customers find out. The ones who paid full price feel like fools. Future buyers learn that waiting is rewarded, so the next quarter softens too, which gets diagnosed as a worsening market. The classic study here is Ehrenberg, Hammond and Goodhardt, “The After-Effects of Price-Related Consumer Promotions”, Journal of Advertising Research, vol. 34, 1994: across leading grocery brands, price promotions produced a sharp sales spike and no lasting effect, because the extra buyers during the promotion had almost all bought the brand before. You pay full freight for a discount and the people taking it are the people who were going to buy anyway.

There are honest uses for a discount. Clearing stock with a carrying cost. Filling capacity that genuinely perishes, like an empty hotel room or an unbooked Tuesday. Buying a first order from a segment you know comes back. Those are decisions with a reason attached. “The phone stopped ringing” is not a reason, it is a feeling, and it is usually fear, which is worth saying out loud at the table because fear makes specific kinds of mistakes.

Four slow quarters, four different problems

Spend an hour working out which one you have before you spend a cent responding.

Fewer leads arriving. Demand or visibility. Look at the channel, the season and who else started advertising.
Same leads, worse close rate. Your offer, your sales process, or a change in lead quality. Price is rarely the real cause even when prospects say it is, because price is the socially easy thing for a buyer to say.
Same number of closes, smaller deals. Buyers are shrinking scope. That responds to a smaller entry offer, not a lower price.
Deals stalling rather than being lost. Decisions are being postponed. That responds to risk reduction and deadlines.

Only the first of those has anything to do with how much you charge, and even then not much.

What to do instead

Pick two and do them properly. Doing nine badly is how a slow quarter becomes a slow year.

Phone your last two years of customers. Not an email campaign. Actual calls, to people who already trust you. This is the highest-yield activity available in a slow quarter and the only thing it costs is time, which you now have.
Reopen every quote that went quiet in the last twelve months. Most were never formally lost. Circumstances move.
Add value instead of cutting price. Extended warranty, an extra service, faster delivery, a bonus item. It costs you less than the margin a discount removes and it leaves your price list intact.
Build a smaller entry offer. A genuinely smaller version of what you sell, priced accordingly. That captures cautious buyers without devaluing the main thing.
Answer faster. The most-quoted figure here is the MIT Sloan and InsideSales.com lead response study presented at MarketingSherpa’s B2B Demand Generation Summit in October 2007, which put the odds of qualifying a lead at 21 times higher when contacted within five minutes rather than thirty. Treat the number with care: it was run by a company selling dialling software, on six firms’ data, and we have not found an independent replication. The direction is uncontroversial and the fix is free.
Fix your quoting. Faster, clearer scope, fewer options. Slow and confusing proposals lose deals that price never would have.
Build the things you never have time for. Case studies, photography, a rebuilt site, tracking that actually works. This work is cheapest in opportunity cost exactly now.
Start two referral partner relationships. They take months to produce anything, which is the argument for starting them in a quiet quarter rather than a busy one.
Cut costs that touch neither acquisition nor delivery quality. Protect the two things that bring customers in and keep them. Cut around them.

The move we are still unsure about

If your unit economics work, a slow quarter is arguably the moment to spend more on acquisition rather than less. When competitors pull back, auction pressure drops and customers get cheaper. Whoever is still bidding when everyone else retreats buys at a discount the busy quarter will never offer.

Two conditions have to hold: cost per acquired customer comfortably below gross profit per customer, and enough cash to fund the gap between paying for them and being paid by them. If either fails, do not do it.

Here is the honest position. We have watched this work twice, clearly, in local service businesses where the owner had the nerve and the bank balance. We have also watched a third do everything right on paper and simply find that the cheaper traffic was cheaper because it had stopped converting, which is a possibility the theory does not account for. Three cases is not evidence. We do not know how often it works at this size, we have not found a study that tests it on firms under twenty people, and we are not going to pretend the question is settled because the logic is tidy. If you try it, size the bet so that being wrong is survivable, and watch the conversion rate rather than the cost per click.

Do not go dark

The standard error is cutting marketing to zero in month one. Pipeline lags. Whatever you switch off today arrives as missing revenue in two or three months, which is often exactly when the market turns, so you get the worst of both. Reduce deliberately if you must. Going dark is a different thing and it takes longer to recover from than the quarter that caused it.

The same goes for delivery quality and for your best people. Both cost far more to rebuild than to keep.

Before you touch a single price, work out whether you lost leads, lost close rate, or lost deal size. Then go and make the phone calls. It is unglamorous, it is free, and we have not yet seen anything on that list beat it. If you are going to change your prices this quarter, the more interesting direction is up, and that is not a joke.