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A standing discount, or a bigger udhaar limit?
A standing discount cuts your margin on every bill forever. A bigger udhaar limit ties up cash for a while and comes back. Here is how to pick one.
How to reward a good customer on purpose
- 1Work out what he actually buys from you in a monthThe reward you can afford is a slice of the margin his buying already puts in your galla.
- 2Price the discount for a whole year, not for one bill3% off Rs 40,000 a month is Rs 14,400 by the twelfth bill, and the same again after that.
- 3Ask whether he needs a lower price or more roomMost steady buyers want breathing room until they are paid, not a few rupees off the bottom line.
- 4Raise the limit in one step, and put a review date on itA limit can be quietly lowered later. A standing discount taken back is felt as an insult.
- 5Say the number and the date out loud, then write both downWhat is never named turns into a permanent arrangement neither of you remembers agreeing to.
Give the bigger udhaar limit. A standing discount takes a slice of your margin on every bill for as long as he shops with you, and you can never take it back without losing him. A bigger limit ties up cash for a while and costs you nothing in the end, as long as he keeps paying.
Two rewards that look alike and are not
Half past seven on a Tuesday, the second delivery of the day still in boxes by the door. Adnan walks in with his monthly list, the same folded list he has brought for nine years, and he does not hand it over straight away.
"Nine years I have been buying here. Not one bill late. Give me something off, or give me more room. Something."
He is right, and you want to keep him. So most shopkeepers say yes to whichever of the two he said first. That is where it goes wrong, because the two do not come out of the same pocket.
A standing discount comes out of your margin. Take 3% off his bill and you have not given him one gift. You have given him a smaller number on every bill he will ever take from you, from that day until he stops coming. It is small each time. It never stops.
A bigger udhaar limit comes out of your cash. Move the ceiling on his khata from Rs 40,000 to Rs 70,000 and you are letting Rs 30,000 more of your money stand out in the street. That money is not spent. It is out of your reach for a few weeks and then it walks back in through the door, because he pays. Your margin is untouched. He is charged exactly what the man behind him is charged.
One is a permanent cut to what you earn. The other is a stretch that closes again. A customer names whichever one he heard about somewhere and the shopkeeper agrees in four seconds. Nobody chose anything.
When the discount question comes at you from every side of the counter it is a separate problem. This article is only about the loyal buyer you actually want to reward.
What each one costs across a year
Arithmetic settles this faster than talk.
Say Adnan buys Rs 40,000 of goods from you in an ordinary month, and say you earn 12 in every 100 on it, so his buying drops Rs 4,800 of margin into your galla. Put your own two numbers in the same places.
Say Adnan buys Rs 40,000 of goods from you every month
Only an example, never a claim about any real shop. And the Rs 0 holds only while he keeps paying. If he stops, a Rs 70,000 ceiling can cost you Rs 70,000, which a 3% discount never could.
The two columns are not made of the same substance.
The Rs 14,400 from the discount is a real loss. It does not sit in a khata waiting for a good month. It went out of the price at the counter and it is gone, in twelve small pieces you barely felt.
The Rs 30,000 from the bigger ceiling is not a loss at all. It stood out in the street and it came home. What it cost you is the use of that money for the weeks it was out: stock you did not buy, a supplier deal you passed on, a slow week ridden out with a thinner drawer. A real cost, and one that ends.
Then there is the line the figure cannot draw. The discount repeats. Twelve months on it is another Rs 14,400, and after that another, for the life of the relationship. The bigger limit does not repeat. It is one stretch, and every time he clears his balance the stretch resets to nothing and is free again.
If your margin is thinner than 12 in every 100, the discount hurts more. Take 3% off a line you earn 8% on and you have handed away more than a third of what you make on it. Working out your real margin line by line comes before you promise anybody anything off it.
The risk, though, is not the same size
Here is the honest other half, and it is why this is a real choice.
A standing discount can never cost you more than its own size. The worst case is exactly the number you calculated: Rs 14,400 a year, with no morning on which it turns into something bigger.
A bigger limit has no such ceiling on its downside. Give a man Rs 30,000 more room and one day the phone stops being answered. Now you are not out Rs 14,400. You are out the whole balance standing against him, which on a month when he had just stocked up could be Rs 70,000 of your buying money.
So the real comparison is a small certain cost against a large unlikely one. That is why deciding how much any single name may carry comes before this question. A bigger limit for a customer whose habits you have watched for nine years is a good bet. The same limit handed to a face you have known four months is not a reward. It is a wager.
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Taking it back is where they stop being equal
Both choices can be undone on paper. Only one can be undone in real life.
A standing discount against a bigger udhaar limit
Eleven in the morning, the shop quiet, the fan doing most of the talking. Rafiq holds the printed bill at arm's length, glasses pushed up on his head. For two years the bottom of that bill carried a line taking 4% off. It is not there now, because the supplier raised his rate twice and there was nothing left to give away.
Rafiq does not shout. He folds the bill in half, says "so it is finished, then", pays, and leaves. He still comes in. He buys the small urgent things here now, and the month's real order goes elsewhere.
That is what withdrawing a standing discount costs. Not an argument. A quiet reclassification of your shop in his head, from his shop to a shop.
A limit behaves differently. Nobody prints a limit on a bill. It lives in your book and in your head. If his paying gets slow you announce nothing. You say "let us bring this down a bit until the last lot is cleared", or you say nothing at all and let the balance do the talking. It can be lowered, raised and lowered again, and none of it feels like a punishment, because a limit was never a promise about price.
Anything taken out of the price is felt as a right the moment it has been given twice.
Once the street knows
Nothing in a bazaar stays between two people.
A discount travels fast, because it is a number on a paper that goes home with the customer and gets shown to a cousin. Within a season the man buying half of what Adnan buys is at your counter asking why he does not get the same 4%. You then have three bad answers: give it to him too and it is no longer a reward, refuse and you have made an enemy out of a paying customer, or explain the volumes and sound like you are haggling with a friend.
A limit does not travel, because there is nothing to show. No paper says Rs 70,000. Two customers stand at the same counter, one with three times the room of the other, and neither can see it. That privacy is worth real money, and shopkeepers give it away without noticing.
Which one he actually wants
Ask him, because the answer is usually not the one he opened with.
Most steady buyers do not want a lower price. They want to not be squeezed on the fourteenth of the month. Adnan asked for a discount because that is the word people use. What he is short of is room between the day he needs the goods and the day the money reaches him.
Watch what the two rewards are worth to two different customers.
A customer paid on a fixed day every month. A tailor, a driver, anyone whose money arrives on the same date. He can plan. A 3% discount is a straightforward improvement to him, and a bigger limit is nearly useless, because his balance never gets near the ceiling anyway. For this customer the discount is genuinely the better gift, so if you give one, give it to him.
A customer whose money arrives in lumps. A contractor paid at the end of a job, a farmer paid at harvest, a caterer paid after the function. He may go seven weeks with almost nothing and then walk in with a full bundle. A 3% discount is worth a few hundred rupees to him and changes nothing. Room is worth everything. He is also the man who will otherwise take his big order to whoever will carry him, and that is how a nine-year buyer quietly becomes somebody else's nine-year buyer.
That is really a question about your own cash, the same one behind collecting weekly instead of waiting for the month end and behind whether one big monthly buyer or twenty small ones suits your shop.
Never set the ceiling from memory. In Wasoolo his balance and his whole paying history sit on one page, so you raise a limit against what the customer has actually done over nine years rather than how you feel about him on a Tuesday evening.
The answers in between
Very often the right move is neither of the two he named.
Whatever you give, give it with a number and a date
Say this
- Your ceiling is Rs 70,000 from today. We will look at it again in six months.
- Clear the bill inside ten days and I will take 2% off it.
- This one line is Rs 30 cheaper for you. The rest is at the counter rate.
- Take the sack, there is no charge for it. Nine years is nine years.
Not this
- Alright, I will look after you from now on.
- Take whatever you need. We will see about the limit later.
- Fine, 3% off everything, but do not tell anybody.
- You are like family. Do not worry about the price.
A gift instead of a rate. Once in a while, hand him something. A sack, a case, a rounded-down bill: "leave the Rs 240, it is fine." He gets the warm feeling a discount gives, your price list stays intact, and nothing has been promised about the bill after this one.
A discount for paying early, not for being loyal. Two percent off if the bill is cleared inside ten days. This one pays for itself, because it buys back the very cash a bigger limit ties up. It also rewards behaviour instead of history, which means it can end quietly the moment the behaviour ends. Be clear about what it is: nothing is ever added on top for paying late, not one rupee, never a penalty and never a late fee. The bill without the early discount is simply the ordinary price everybody else pays.
A discount on one line, not on everything. Pick a slow-moving item, or the one line where your margin is fat, and give him a better rate on that alone. He feels looked after every time he buys it, and the other forty things on his list stay at the counter rate.
The limit in one clean step, with a date. Do not drift upward by Rs 5,000 at a time until nobody remembers the ceiling. Raise it once, say the number, and put the review date on his khata page in Wasoolo.
Any of these keeps him without opening a hole in your margin you can never close. The wider habits of keeping regular customers and still getting paid are built the same way.
Say it out loud, with a number and a date
Whichever you choose, the whole thing turns on one sentence at the counter.
"From today your limit is Rs 70,000. We will sit down again in six months and see how it went." Or: "Clear inside ten days and I take 2% off. Ten days, not eleven."
Both have a number in them and a date in them. Say it in front of him, and write the same words down while he is still standing there. A reward with no number and no date is not a reward. It is a permanent arrangement neither of you can remember agreeing to, which is exactly what Rafiq's 4% had become by the time it disappeared.
Keep it on the record, not in memory. A statement or an invoice out of Wasoolo shows the customer what he was charged and what came off, so a discount you gave is a line he can see rather than a thing he half remembers. Do that and the argument fourteen months from now does not happen at all.
Reward him deliberately. Price it for a year before you promise it. Then say it once and write it down.
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Common questions
He asked for a discount, not a bigger limit. Can I just offer the limit instead?
Yes, and say why in one line: "I cannot move the rate, but I can give you room." Most steady buyers take that happily. If he only wants the rate, tie it to paying inside ten days rather than to loyalty.
How much extra room is safe to give a nine-year customer?
Look at what he buys in a month and what he has actually cleared before. A ceiling of one month's buying plus a little is normal. Past two months of his own buying it stops being room and starts being money you are hoping about.
I already give a standing discount and it is killing me. How do I get out?
Do not remove it in one stroke. Hold it flat while your costs rise, and when the rate changes for everybody let his change too, with the reason said out loud. If it must go, replace it the same day with room or a real gift, so he loses a number but not his standing.
Will a discount for paying early cost me more than the udhaar was costing?
Work it out on one month first. Two percent off Rs 40,000 is Rs 800. If that Rs 800 brings the money back three weeks sooner and lets you buy stock instead of waiting, it has paid for itself. If your drawer is comfortable anyway, do not bother.
Should the extra limit and the discount ever go together?
Rarely. Together they cost you margin and cash at once for the same customer, which no single relationship is worth. If you want to give two things, give room plus an occasional gift. The gift costs you once, not forever.
What if he takes the bigger limit and then slows down?
Lower it back quietly at the review, not in anger at the counter. Say the balance has to come down before the room goes up again, and mean it. This is why a limit is the safer reward: it can be adjusted without insulting anybody, which a price never can.