Sales are flatlining, and marketing efforts are stagnating. You’re at an operational crossroads—should you rethink your strategy or offer a discount? Contrary to popular belief, deals do more harm to business profits than they do any good—at least if you’re misapplying them. If you’re considering offering a discount when your business is suffering financially, here’s why you shouldn’t.
It Impacts Your Profit Margin
Put an item on sale, and it’ll have to work harder to make up for every percent you knock off. Making up for the revenue lost means having to sell more than you typically do—if you aren’t selling enough, to begin with, a discount isn’t going to fatten your profits.
For example, suppose you’re working with a 30% margin. If you offer a 10% discount, you’ll have to sell 50% more than usual to match profits.
It Negatively Affects Cash Flow
If you find yourself grasping at any opportunity for cash flow, it may be time to look into growth services. Experts will tell you that discounts hardly make for a long-term, sustainable solution. This top-line change can impact operations down to your bottom line—and it won’t be minor.
It Decreases Perceived Value
Like judging a book by its cover, consumers will dictate an item’s value based on its price. When you discount an item, you inadvertently tarnish and cheapen its value.
Don’t focus on numbers. Instead, highlight the value of this product of service, and build confidence in your ability to provide. Zero in on marketing efforts and get active online.
It Sets Future Expectations—and They Don’t Look Good
A discount is never just a discount. It can sabotage future opportunities that work to maximize profit margins. Lower the perceived value of an item once, and consumers will expect the same prices moving forward—to the point that it becomes inescapable.
Furthermore, if you’re offering discounts only to a specific customer, you destroy current and anticipated business relationships. Suddenly, you’re operating under unstable pricing structures that become challenging to recover from.
What Should You Do Instead?
The first step towards better understanding your profits and opportunities for growth is to look into accounting services. With a professional accountant, you can price your way towards profits.
Don’t offer 10% off on a poorly-selling item. Instead, add 10% to its value. Even if you sell 25% less of the item, you’ll still achieve the same profit margin as you would normally. Regardless of the revenue you make in that period, it’ll flow directly into your bottom line.
However, rather than struggling over the price of an item, work on tangibly demonstrating its value. Publish social proof on your website or upload a how-to video that reflects its worth. Write about case studies and ask satisfied customers to leave sterling reviews online.
Ultimately, when it comes to salvaging low sales, it isn’t about what you earn—it’s about what you keep. Without an in-depth understanding of your numbers, it becomes too easy to jump to conclusions. Check out our free dashboard below!
For busy founders seeking accounting solutions, work with us at A4E. With the bookkeeping, taxes, and CFO services, you can determine how your business is performing through comprehensive business financial reports. There’ll be no need for discounts!