The Christmas rush is over. February is typically a slow month, so let’s start discounting right? Or maybe not. Offering discounts on products or services is a way to quickly draw people into your store. Anytime you tell a customer that they can save money, you’re likely to get they attention. Discounts don’t just help your customers; it also helps your business.
The three main reasons for discounting are Cash Flow, Moving Old Stock and Lead Generation. One reason why you would definitely discount is for cash flow reasons. If you want to increase the amount of cash in your bank right now, you might choose to discount your products or service. A second reason why you may choose to discount is to move old stock. If you have a product that is out of season or is longer relevant, you may want to get rid of it. The third reason is a marketing lead generation strategy. You could sell a certain product at a lower price just to get people in to sell them other products or services.
There are certain times when you should discount but be aware of the implications on your profit. For example, if you sell a product for $100, and this product costs you $80, you make $20 profit on that product. Now if you decide to add a 10% discount onto this product, you are now selling it for $90, if it still costs $80, you are then reducing your profit down to $10. Therefore, that is a 50% decrease to your profit on each unit. So, you must sell twice as many units just to make the same amount of profit. Thus you have got to carefully consider the implications that discounting can have on your profit before hand.