Why Discounting Aggregates Is Financial Self-Harm.
By Barry Hudson
You wouldn’t saw off the branch you’re sitting on, right? And yet, every time someone discounts the price of aggregates just to “close the deal,” that’s exactly what’s happening to the bottom line of your quarry – or worse, your entire enterprise. Let’s make one thing abundantly clear: aggregates is a volume game, but it’s also a margin game. And discounting is the fastest way to lose both.
Let’s unpack this with a bit of math (don’t worry, it’s quarry-grade math – solid and straightforward), some real-world analogies and a hefty dose of common sense dressed up for the boardroom.
The Illusion of Volume
Imagine you’re selling crushed stone at $10 per ton. Your variable costs (fuel, wear and tear, labor, etc.) are $6 per ton. You’ve got $100,000 in fixed monthly overhead – equipment leases, salaries, insurance, the usual. You sell 50,000 tons in a month.
Here’s how that looks:
- Revenue: 50,000 tons × $10 = $500,000.
- Variable Costs: 50,000 × $6 = $300,000.
- Fixed Costs: $100,000.
- Profit: $100,000.
Not bad. But then someone decides to “help the customer out” and drops the price to $9 per ton – just a dollar off! What could go wrong?
A lot.
Let’s re-run the math:
- Revenue: 50,000 × $9 = $450,000.
- Variable Costs: still $300,000.
- Fixed Costs: still $100,000.
- Profit: $50,000.
You just halved your profit. For a lousy buck. Hope the customer sends you a thank-you card (and maybe a muffin basket).
Volume Needed to Recover the Profit
You might think: “We’ll just sell more tons to make up the difference.” That’s a dangerous assumption.
To get back to the original $100,000 profit at the $9 discounted rate, you need to sell how much more?
Try this on for size: 75,000 tons.
That’s 25,000 extra tons – a 50% increase in volume – just to end up where you started. That means more wear on equipment, more truck traffic, more fuel, more risk, and absolutely no additional margin.
It’s like trying to run up a down escalator. You’re burning energy to stay in the same place. And don’t forget, aggregates are a non-renewable resource. Can you have sustainability initiatives and a discounting culture in play at the same time? Let’s not be hypocrites.
The Crushing Weight of Fixed Costs
Fixed costs are like your mother-in-law: they show up whether you like it or not and stay the whole month. You can’t discount your way out of them. When you cut your price, those fixed costs gobble up more of your margin per ton, leaving you with less profit – or none at all.
Think of it like a pizza shop. Whether they sell 10 pizzas or 100, the rent stays the same. But if they discount each pizza from $15 to $13, they need to sell a lot more pies to cover the rent. That’s how you end up working harder for the same – or less – money.
Lessons From Other Industries
Let’s look beyond the pit.
Airlines: Ever wonder why airlines charge $800 for an economy seat booked late? Because discounting them all to $99 doesn’t fly (pun intended) when they’ve got to fuel up a Boeing and pay pilots.
Software-as-a-Service (SaaS): Companies like Salesforce rarely discount. Instead, they bundle, tier, or upsell. They understand the importance of protecting price integrity to maintain cash flow and valuations.
Luxury Brands: Rolex doesn’t run Black Friday sales. Why? Because it would crater their brand value. Aggregates may not be Swiss watches, but the principle is the same: perceived value matters, even in a commoditized market.
Discounting is Lazy Salesmanship
Let’s just say it: discounting is often a shortcut. When salespeople can’t articulate value, they reach for the price lever. It’s easy. It feels like action. But it’s the commercial equivalent of taking aspirin for a heart attack. You’re treating the symptom, not the cause.
Want to “win the deal”? Try these instead:
- Sell total cost of ownership. Emphasize reliability, reduced fines, better compaction and less downtime.
- Build partnerships, not transactions. Discounting says, “You’re just another job.” Value selling says, “We’re in this together.”
- Use delivery logistics as leverage. Can your competitor get that same spec stone on site, on time, every time?
Price = Value Signal
Pricing sends a signal about value. Discounting tells your customers: “This isn’t worth what we said it was.” It erodes trust. And once the market gets a whiff of desperation pricing, your competitors will weaponize it against you.
You know who loves discounts? The customer that will churn next month when someone else drops the price another nickel. You know who respects pricing discipline? Long-term customers who care about quality, consistency and supply reliability.
Strategic Discounting (If You Must)
Let’s not be purists. There are narrow cases where discounting might make strategic sense:
- End-of-year budget flush.
- Clearing overstocked inventory.
- Winning a key account (with a lock-in agreement).
But these should be rare exceptions, not standard practice. And they should always be paired with conditional value: exclusivity, volume commitments, prepayment, or longer terms.
Final Word to the C-Suite
If your aggregate operation is hitting volume targets but not profit goals, the culprit is likely your pricing discipline – or lack thereof.
Discounting might give your sales team the illusion of success, but it’s robbing your business of long-term viability. It’s time to change the culture. Demand accountability. Train your sales force to sell value, not price. Create incentives based on margin, not just volume.
Remember: it’s not what you move. It’s what you make.
Barry Hudson is vice president, construction materials at XBE, [email protected]. He is also CEO at TheOrange-Corp.com
References
Hinterhuber, Andreas. “Value quantification capabilities in industrial markets.” Journal of Business Research, 2017
Harvard Business Review. “The Dangers of Competing on Price.” March 2016.
McKinsey & Company. “The Power of Pricing: The Profit Lever Most Companies Neglect.” 2015.