Best Way to Provide Discounts without Destroying Profits

Every business wishes to generate maximum sales and surpass its competitors in terms of becoming the favorite brand in the eyes of customers. For this, every firm adopts different and unique methods of promoting and marketing their products/services, and one of the biggest marketing tactics adopted by businesses worldwide is nothing but a discount offering.

Providing discounts to customers is surely one of the best ways to attract customers and spike sales, but is it right to do so? There are a lot of speculations in the minds of business owners as to whether or not discounting is beneficial for them. So, let us learn if discounting is beneficial, how to go for it, and if it is not beneficial, why not?

Demerits of Offering Discounts

1. Decreased Profit Margin

This is so obvious! When you are offering discounts to your customers and selling at prices lower than normal, your profit margin will come down for sure. Now, if you are an established business, it will not be that tough for you to take such a risk and bear losses, but if you are just starting out and offering discounts, it may create hindrances in your growth.

2. Lowered Perceived Value

If you offer discounts today, customers will start anticipating the same in the future as well. If you do not meet their expectations in the future, they will simply go past you. Also, there might be a few products on which you provide a big discount but won’t be able to give the same on future products due to fewer margins in them, leading to complete dissatisfaction amongst such customers.

3. Discounts Attract Non-Loyal Customers

Discounts attract customers who are simply looking for a less priced commodity and are not at all interested in your brand. Once you stop offering discounts to them, they will look for other options. So, if you want to have a loyal customer base, you need to use the discount tactic in a much-refined manner.

4. Affects Existing Customers

If you are one of the business names on the discount sites offering the same products and services at discounted prices, your existing customers will be hit hard. Either they will feel cheated or they will feel like there is no worth of their loyalty towards your brand. And as they say, retaining customers is much moré important than acquiring new ones; one should think of existing customers first.

5. Negative Brand Perception

This is human psychology that if something is available cheaper, it must be of low quality, and the same perception gets developed towards the brand. For instance, there are a lot of airlines that offer discounts against top airlines. This puts the brain into thinking that lowered rates mean degraded products or services, and the same can happen with your brand too.

Discounting Ways Ensuring Best ROI

1. Set Discounting Goals

First, think about why you want to offer discounts. Is it to attract new customers, is it to get rid of some old inventory, create market buzz for a specific product/service, damage competition, retain customers loyal to your brand, or more? Once you figure out your discounting goal, figure out every possibility, and evaluate deeply if merits will be more than the demerits or not.

2. Increase Pricing

You need to understand the customer mindset and the reason for discounting, i.e. to attract people. So, do the same, but why at the cost of your margin? If you increase your pricing and then offer discounts on that, you will be in a position to earn even more! Discounts will make customers come to you and buy thinking they got something good at a lower price, and you will be in a position to earn profit and trust at the same time.

3. Take Care of Existing Customers

If your business is offering discounts to attract new customers, you cannot risk losing out on your existing customers. If the discount associated with a specific product/service is not applicable to existing customers, make some different offers to them in order to stop them from thinking that you do not care for them anymore.

4. Be a Marketing Strategic

Once you are able to make customers through your discounts, you need to have a proper marketing strategy in place to convert these low-price attracted customers into your loyal ones. Based on the specifications of your new customers like age, income, geography, etc., you must target these new entrants in your business with excellent retaining strategies.

5. Go for a Free Trial

If your business is into a service that can have a free trial, it is much better than offering discounts. The purpose of discounting is mostly to attract new customers and retain them. However, this comes at the cost of adjusting with the profit margin. On the other hand, when you offer a free trial, you do not have much to lose and are also able to show your potential to new customers, winning their trust and confidence.

For instance, providing a free trial for 7 days against your online bookkeeping services will cost you nothing as compared to offering a discount for the first 1 to 3 months. Always remember one thing, long-term customers appreciate quality over price, and these are the customers that you want. If you can provide them with quality in your free trial, they won’t think while taking money out of their pockets.

  • Wrapping Up

Undeniably, discounting is a great marketing strategy, but one should know how and when to use the same. With so much competition amongst firms, business owners are leaving no stone unturned in leveraging every marketing opportunity that comes their way.

However, owners should never forget that the prime aim of discounting is to pave the way for long-term association with the customers and not just on making some quick sales. One needs to think in the long-run when it comes to offering discounts as short-term gains can never replace the long-term benefits.

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Stacey Howard has 6 years of experience in accounting & bookkeeping. She has been working as an accountant with reputable firm Cogneesol– accounting and bookkeeping service provider. Due to her passion, she has contributed significantly through her write-ups about multiple accounting industries.