Offering your customers exciting discounts or promotions is a great way to increase interest and drive sales (not to mention move extra stock). Who doesn’t love a great deal, right?
With that being said, simply deciding to offer your customers a discount at a moment’s notice or whenever you feel like it can actually do more to damage your brand and profits rather than elevate them.
So, it’s very important that you approach discounts strategically in your business. You should be approaching discounts with the following on your mind:
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The type of discount you will be running and how it will help you reach your desired outcome.
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How the discount will affect your sales targets.
- Whether or not your discount makes sense.
In today’s blog post, we’ll be going over all of the above, so if you’re sensing a sale could be in your business’s future…you’re in the right place! Let’s dive in!.
But first, a little science…
Discount strategies are a proven tactic for many businesses because they actually appeal to consumer psychology via a phenomenon known as “anchoring bias.” Anchoring bias is the tendency for our brains to rely too heavily on a single piece of information when making a decision. With discounts, marketers aim to ‘anchor’ consumers to the original, higher price. Introducing a discount that reduces the price can alter the buyer’s perception of the value, making them more likely to buy.
If you’ve ever bought something heavily discounted because it was “too good a deal to pass up”, the anchoring bias is why. And it’s also the reason why discounts will work for your business, too — if you approach them correctly.
Types of discounts
The type of discount you will offer will depend on your business model, customer base, and goals. When selecting your discounting strategy, it’s extra important that you know what your audience will be attracted to and what will bring you the closest to your desired outcomes. Let’s go through a few of the most common discounting strategies.
The most common type of discount is a special offer or pricing deal. This could be a percentage off, or a set amount of dollars off a purchase, such as 20% off or $100 off.
Packaging or bundling stock encourages customers to order more stock or services and be rewarded with savings on their purchase. This strategy works especially well when customers can see the benefit of complementary products or services and buy them together at the discounted price. For example, if a customer needs face wash but not moisturiser, they may begin their shopping journey with the intention of only purchasing face wash — yet if they are able to receive the moisturiser that goes with the face wash for a special price, it may sway them to give it a try as it doesn’t feel like buying an additional product.
Ever heard of “buy one, get one free”? This is a prime example of a quantity discount, which refers to offering customers a percentage discount or additional product for free if they buy a set number of items or spend over a certain amount. This increases the size and monetary value of customer orders, in turn allowing you to move extra stock while bringing in additional income.
If you don’t want to discount the price of a product or service, you can still give your customers an incentive to buy by adding extra value to their purchase. For example, if you run a hair salon, a value added offer could look like including a free set of products with every wash and style.
There are times of the week, month, and year when certain goods and services are in less demand than usual. Offering discounts on such goods and services during these slower periods is a discount strategy that works especially well for industries like retail, travel, restaurants, and so on. A great example would be end-of-winter sales, when items like winter coats and boots are mega-discounted.
Once again, the type of discount you choose will depend on what’s currently going on in your business and what your main goals are.
How discounting affects your sales targets
Part of approaching discounts from a strategic angle is knowing exactly how they will affect your real numbers and sales targets. To successfully run a sale without making a loss, you need to know your gross margin and markup plus your BEP so you can determine how the discount will affect your profit.
Once you know these numbers, you can use the table below to see how much your sales volume will need to increase depending on what your discount looks like.
|
Current gross margin |
5% discount |
6% discount |
8% discount |
10% discount |
12% discount |
15% discount |
|
0% |
150% |
400% |
||||
|
15% |
50% |
66.7% |
114.3% |
200% |
400% |
|
|
20% |
33.3% |
42.9% |
66.7% |
100% |
150% |
300% |
|
25% |
25% |
31.6% |
47.1% |
66.7% |
92.3% |
150% |
|
30% |
20% |
25% |
36.4% |
50% |
66.7% |
100% |
|
35% |
16.7% |
20.7% |
29.6% |
40% |
52.2% |
75% |
|
40% |
14.3% |
17.6% |
25% |
60% |
42.9% |
60% |
Does your discount make sense?
The number one mistake I see as a business consultant when it comes to sales and discounts is that they don’t actually make sense — meaning, they don’t make it worth it in the long haul profit OR energy wise.
To make sure you’ll still be increasing your cash flow and bringing in revenue on the extra orders coming in from your discount, be sure to consider:
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Your current profit margin + markup, and break-even point. These numbers will help you figure out if a sale is even feasible right now.
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The discount price that will still allow you to make a profit. Do the math so that you don’t accidentally price your offerings too low.
And there you have it! With a little planning and some number-crunching, you should be well on your way to hosting a raved-about sale that will benefit your business and overall income goals.
As a business and marketing consultant, part of my job is helping my clients figure out a smart, strategic approach to running discounts that goes hand-in-hand with reaching their goals. They don’t call me the CEO’s wing woman for nothing, so if you crave actionable support and strategy in this area from a 7-figure industry leader, learn more about booking a strategy session to get your next big sale event locked in and expertly planned!