What’s a fair employee discount?
Here’s an interesting question I thought I’d field to you (with permission of course):
Our sewing contractor asked me today about their employees wanting to buy our products for personal use. What’s a fair price? Would 55% off retail for first quality and 75% off for seconds (with cosmetic flaws) be reasonable? We are thrilled that they are interested in buying our products, and if they have firsthand experience using them — our manufacturing quality will benefit. Is the 55% off price too high, and should I sell them at cost instead? Or is it reasonable to ask them to pay close to wholesale, so we can cover our overhead costs without taking a loss on those? (I have no idea whether this is just a handful, or dozens of products over time.)
I want to treat their employees well, since they’ve made huge contributions to our finished product. Meanwhile we’re sending out press samples like candy — it seems stingy to make employees at our contractor pay for them when our PR agent is giving so many away. But I’m curious if there is a standard protocol for this type of request, and whether I’m getting myself in trouble long term if we offer them much below wholesale.
I had a question and she amended her response with this:
We discussed this last night and decided to offer them for much less than wholesale to people there — basically close to cost, and for first quality goods only. We aren’t trying to make money on them… and we are thrilled that they are personally interested in our product.
I have mixed feelings about this. It’s one thing to get warm fuzzies from consumers or buyers who buy your products but quite another thing when the people you’re paying, want to pay you. They’ve seen a lot of products and been around the block and if they really wanted to, could produce them for themselves so I understand wanting to reward their integrity. That said, I think the proposed discounts are overly generous. My work experience has been limited to established manufacturers but the best discount I remember was maybe 25% off retail. That in addition to the semi-annual employees only sale to get rid of drops and wonky prototypes and even those sold for about the equivalent wholesale price.
For my part I’m leery about discounts especially these days. What if the contractor’s employees decided to sell them on eBay and in effect, compete with you? What kind of controls would be in place? I’m torn about selling seconds but it seems wasteful not to. On one hand, they’re perfectly serviceable. On the other hand, if they’re sold on eBay (presumably the value based on first quality) consumers unfamiliar with your line may think these seconds represent your standard quality level.
What do all of you think?