To Discount, or Not To Discount

Many of my clients have been tempted to discount their service or product in order to get more customers – I encourage them first to think about the cost to their business. Owners should be apprehensive about discounting, and consider the long-term effects of their decision.

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Cutting Your Prices Costs You Money

It’s simple math. You currently run your business at a particular profit margin (divide your net income by net sales to come up with your profit margin). When you run a discount and take in less money from your customer, you’re cutting your profit, which will force you to make some difficult decisions like: 

-using lower quality materials

-reducing the level of service you provide

-reducing the speed at which you deliver your service

-paying your employees (or your self!) less 

Consider this carefully: discounting not only costs you money, but risks your reputation. When you run a promotional discount, it sends the signal that having the lowest price is all that distinguishes you from competitors.

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Let’s say your current profit margin is 40%. If you give a 10% discount, you would need to increase your sales by 33% just to maintain your current revenue! For a 20% discount, you would need a 100% increase in sales. A 25% discount? You would need to increase sales by 167%! As you can see, even a “small” discount can wipe out your margin.

How Discounting Dismantles Your Business Goals

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All of my clients set impressive growth goals for their businesses quarter after quarter. I encourage each owner to consider whether running a discount will put them behind on their goals, both short and long-term. It’s likely that instead of getting ahead, they’ll be playing catch-up. Discounting is just a short-term fix which will likely have negative long-term effects on their business.

How To WOW Your Customers Without A Discount

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We tend to think that potential customers only buy based on price – but in reality, perceived value is more often a deciding factor. It’s as simple as this: when you cut prices, your customers perceive your product or service as less valuable. Once you’ve started discounting, it’s challenging to stay out of the cycle of continuous discounts, as customers start to expect them.

 

Instead of opening the door to discounts (and lowered expectations and perception of value), wow your customers with flawless customer service and a reliable, high-quality product or service that will keep them coming back for more. And if you don’t believe you’re worth every penny you charge, I can help you change that mindset (email me to see if you qualify for a free coaching session!)

Think Before You Discount

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As a business owner myself, I understand the lure of getting a rush of new customers through the door. However, I highly recommend that you consider the amount of money you’ll be giving away as part of a discount, and examine where it is better utilized. Perhaps what your business really needs to be successful is effective marketing, sales training, or upgraded resources to execute your craft. 

If you’re struggling to pinpoint what steps are necessary to see your business grow, working with me – an ActionCOACH certified Business Coach – can help. Take my Business Health Check Test here and gain clarity on your next step toward greatness!