Why You Shouldn’t Offer Discounts In Your Business
Want to boost sales in your business?
Then don’t offer a discount!
Sounds strange, doesn’t it? As often a common strategy for getting some quick dollars in the door is to have a sale or offer a discount.
But, you could actually be doing your business harm by using this tactic.
In fact, it could end up costing you sales in the future. For a start, you won’t have as much revenue coming in as you usually would, then you could be hindering your growth and attracting the wrong kind of clients.
So, here’s why you shouldn’t offer discounts in your business.
Cheapens Your Brand
While you might want to slap on a discount to clear a product or to get an injection of cash flow, think how it looks to your clients.
They might think that you have no confidence in your own services, so you need to cheapen the price to entice people to take it up. They could also think that you don’t place much value on your products or services, so you have to sell them at a discounted price.
Sales or special offers greatly impact the perception that people have of your business. They could perceive that you don’t stand behind what you are selling or that you don’t trust your own offerings. You basically cheapen your brand in the eyes of your prospective clients.
Too Much Focus On Price
When you offer a discounted rate, the focus rests on the price. It does not focus on the value that you are delivering.
Suddenly, it becomes less about the benefits of your offerings and more about price comparison. You need to make the value you deliver your competitive advantage. If you always focus on price, then that is what your client base will focus on too.
They may also become addicted to your discounts. So, when it comes time to buy again or to renew a contract, you could lose a good client if you don’t offer a further price reduction. They might not value your services as much as they seem “cheap” and easy to throw away.
It Hurts The Bottom Line
The idea of running a business is to make money. It is difficult to make a large profit if you are discounting it away. It means you need to invest more resources, time and energy to get the same amount of return. It just isn’t smart business. It won’t reflect well on your bottom line.
Basically, it makes the business look unprofitable. When you discount your prices, you are effectively discounting your profit margin. You need to sell more product just to make the same amount of money – increased sales will not mean increased profit.
Let’s take a quick look at the real cost of a 10% discount. On the face of it, 10% doesn’t really sound like that much, but it can be…
Say you have a $50 product. It costs you $30 to produce, which leaves you with a gross profit of $20 per unit. If you sell 1000 of them, you will have a sales revenue of $50,000 and a gross profit of $20,000.
If you are offering a 10% discount, you are now selling the product for $45. It still costs you $30 to produce, but your profits are now cut to $15 per item. Suddenly, your gross profit sinks to $15,000.
You have just lost 25% of your profits by offering a 10% discount!
That is not going to look attractive to potential business buyers if you are considering selling the business in the future.
Discounts are not the way to increase sales in your business. In fact, as we have just proven, they can be quite detrimental to your brand, your client confidence and your profit margins.
If you would like some insight into how you can increase your business without jeopardising your profit, then get in touch with the team here at Accountants Plus. We have years of experience in the business world and can provide practical business advice to boost your profits. Contact us today.