To discount or not to discount – that’s the question!

Some small business owners, maybe you or maybe not you but it’s definitely been me in the past, use sales (discounts) to increase cash flow.

For example, you are having a quiet month and you think, I’ll have a sale, I’ll give 20% off and start the cash rolling in.

It makes logical sense and I know in my retail days it was definitely a strategy that worked.

But what’s the real cost to your business and to your profitability?

Is discounting a good thing or a bad thing?

Clearly the answer is going to lay somewhere in the middle.

As this post drops on my website its Cyber Monday, coming off the back of the Black Friday mega sales.

This is the sale period I have an absolute love hate relationship with.

I love it as a consumer – there are things like Lego and perfume that always make it on to my Black Friday list of things to buy.

I hate it because it decimates small business.  It’s for big business mostly and small business, which can’t really afford to discount, do so to keep up and then lose profit in the most profitable time of the year.

And even though I did actually do an offer for the launch my 2023 Women in Business (not so business) retreat and offer an early bird price – I also know that the Black Friday sales period is adding pressure to small business – which they don’t need.

(NOTE: at the time of posting this blog I only have a couple of spaces left on the retreat! So, if you’re interested in that, then head to my socials or email me jenn@jenndonovan.com.au and I can send you some more information!)

But back to the topic at hand.

Let’s discuss discounting and whether it’s a good thing or not.

And again, the answer is yes and no.

And although that’s a cop out – understanding what discounting does to YOUR business is the point I want to make.

Below is a graph that is great for reviewing what discounting means for your business – and the damage discounting does and the mindset you need if you are going to discount (oh and the marketing you are going to have to do!).

As you can see, the graph basically shows that if your GM (gross margin) is, for example, 40% and you are offering your items/services on sale for 15% off – you need to sell 60% more products or services than you would if you didn’t have a sale.

That’s a lot, isn’t it?

If you offer 15% off your products or services, you have to sell 60% more than you would on any other given day or week – for however long the discount goes for.

When I was in retail, we used to have 20% off sales a few times a year and when I was introduced to this graph, it didn’t make us go on sale any less, but it certainly did make us think about the marketing we would need to do to increase our sales by 50% more.  Our GM  was 60% and the sale was 20% off – which according to the graph means we had to sell twice as much!

Of course if you need to sell twice as much, you need to do some great marketing – and sometimes paid marketing – which means you have to sell even more because you have marketing expenses to cover.

So, here are my three main take-aways when it comes to deciding if you should discount:

1. Do you know what your GM is – of the price you are selling x product or service for – what’s profit and what’s covering expenses
2. Where is your breakeven point – at what price does your item/service cover its costs – fixed and variable
3. If you are going to discount – how are you going to get the traffic to your store (be it bricks and mortar or online) to sell x amount more (depending on the discount amount) but let’s say somewhere between 50 and 60 per cent more than normal PS – you probably need to know what normal is too!

Discounting for most of us comes from the pressure to compete – like Black Friday, Boxing Day sales and so forth.  And it is good for cash flow if you need it.

But there is a true cost to your profitability – and it’s not always good.

Marketing takes work to get sales, we all know that.

But to discount, you need to make sure you have the budget and the time to upscale your marketing to get the increase in the amount of sales you need.

So, my wish for you, no matter what your business is, is that you take away from this blog the idea that discounting is NOT bad.

BUT if you do discount you are going to have really dig into your marketing strategy and up that to get the extra sales you need.

Of course, some extra sales will come naturally purely because the product/service is cheaper – but others you will have to work hard for.

And if you aren’t prepared to work that extra hard – don’t discount!  Simple!  You probably won’t be any better off if you offer and discount and just sit there waiting for people to buy!

Got ideas or questions?  Sing out.

I’d love your feedback and thoughts- head to my Facebook group Like Minded Business Owners or email jenn@jenndonovan.com.au – I’d love to know your thoughts on what are big futurist topics.

As always, if you want to chat about your profit margins, how to market better when you are on sale or  how to have a awesomely profitable business without discounting – book a discovery call with me http://bit.ly/Discoverwithjenn and let’s do that together.

Or, let’s hang out and get social on social – you’ll find me on Instagram, Facebook and my fave LinkedIn.

CONTACT JENN:

Don’t forget, you can book a free discovery call with me to talk about how I can help you with your marketing strategy to make it sustainable and achievable! Simply click the link and grab a spot!

My Like Minded Business Owners Facebook group is also a great community to join – full of awesome people in small business.

Or you can DM me on Instagram or send me an email jenn@jenndonovan.com.au

I wish to acknowledge the Traditional Custodians of the land, the Yorta Yorta People, on which I conduct my business today and pay my respects to their Elders past and present. I extend that respect to Aboriginal and Torres Strait Islander peoples reading this blog post today.

About the Author:

Jenn Donovan of Social Media & Marketing Australia.  Jenn’s an expert marketing coach and mentor from rural NSW. She is all about empowering business owners to earn what they’re worth so they can make a bigger difference in the world.  The Founder of Buy From a Bush Business, Co-Founder of Spend With Us – Buy From a Bush Business Marketplace and host of the very popular podcasts Small Business Made Simple and Stories from the Bush. Jenn is all about community and humans interacting with humans!  H2H Marketing – human to human marketing. Jenn talks the talk but importantly walks the walk! Jenn’s online community is over 320,000 with her famous Facebook Group currently at almost 370,000 members and still growing every day.  She’s the mayor of her own little online city!

Get in touch – www.socialmediaandmarketing.com.au

On Instagram – @jenndonovan_

On Facebook – Jenn Donovan

Or on LinkedIn as Jenn Donovan