The downside of discounts and how they impact your business

October 02, 20243 min read

A subject that may seem harmless on the surface but could be significantly damaging your profits – D I S C O U N T S

We will be discussing a subject that may seem harmless on the surface but could be significantly damaging your profits – discounts. So, let's challenge the notion that discounts are always beneficial, explore the reasons why we offer them, and uncover how they might be hurting your business.

What Exactly is a Discount?

Before we delve into the consequences, let's clarify what a discount truly entails. A discount is the act of offering a reduction in price from your standard charges to entice customers to purchase a product or service at a lower cost. In theory, this may seem like a win-win situation, but we need to take a closer look at the underlying implications.

The Unforeseen Costs of Discounts

While discounts may appear to be a minor subtraction from the sale price, their effects on your business's profits are far from insignificant. Suppose your product or service is priced at $100, with costs amounting to $70, leaving you with a $30 profit margin. A 15% discount of $15 might seem inconsequential, but it's important to recognize that your costs remain unchanged. This implies that with the discount, your profit is reduced by 50%, now standing at just $15. :(

Furthermore, when you consistently offer discounts, you'll need to work harder to make up for the lost revenue. To illustrate, if you provide the same 15% discount to another customer, bringing your charge down to $85, you'll only make a $15 profit. To match the profit earned from a full-price sale, you'd need two customers purchasing at the discounted price.

Addressing the Real Issues Behind Discounts

The desire to offer discounts usually stems from three main reasons: the belief that it makes customers feel good, fear of losing potential customers without discounts, and the inability to say no to customer requests.

Let's break down each of these factors to gain a better understanding.

  • The Feel-Good Factor:

While it's true that customers may feel good momentarily when they receive a discount, it's vital to consider the long-term impact. Discounting devalues your product or service, leading customers to question whether it's worth the full price. Holding firm on your pricing conveys confidence in your value proposition and maintains your product's perceived worth.

  • Fear of Lost Sales:

Many business owners fear that without discounts, customers will be unwilling to make a purchase. However, when you've marketed your product effectively and demonstrated how it meets customers' needs, price often becomes less of a deciding factor. Instead, focus on showcasing the value you offer, and customers will be willing to pay for it.

  • Difficulty Saying No:

Sometimes, business owners find it challenging to refuse a customer's request for a discount. However, sticking to your pricing is essential to maintain the integrity of your brand and ensure consistency. Politely explain your pricing strategy and the value customers receive, and most will understand and respect your stance.

Embracing a Mindset Shift

Now that we've uncovered the potential pitfalls of discounts and addressed the common issues that hold us back from raising prices, it's time to adopt a new mindset. Remember these key points:

  • Value Yourself and Your Offering:

If you don't believe in the value of your product or service, how can you expect your customers to do so? Be confident in what you offer and be willing to pay for it yourself.

  • Selling as Consultation:

View selling as a consultation, where you identify your customer's needs, offer solutions, and explain how your product or service addresses their pain points. This approach builds trust and fosters long-term relationships

HEAR THE FULL EPISODE HERE.

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Ian Morgan is a straight-talking business owner and financial strategist with over 15 years’ experience helping ambitious entrepreneurs take control of their numbers. As the Managing Director of MBS Accountants, Ian leads a team that combines smart technology, clear financial insight, and proactive advice to support businesses from £250k to £10m+ turnover.

He’s passionate about turning messy finances into meaningful data, helping business owners improve profits, plan ahead, and reduce stress – without drowning in jargon.

When he’s not leading strategic sessions with clients or developing innovative services like AI-powered bookkeeping, you’ll find Ian hosting The Leaky Bucket Podcast, sharing real-world insights on what makes businesses thrive (or leak cash!).

Ian Morgan

Ian Morgan is a straight-talking business owner and financial strategist with over 15 years’ experience helping ambitious entrepreneurs take control of their numbers. As the Managing Director of MBS Accountants, Ian leads a team that combines smart technology, clear financial insight, and proactive advice to support businesses from £250k to £10m+ turnover. He’s passionate about turning messy finances into meaningful data, helping business owners improve profits, plan ahead, and reduce stress – without drowning in jargon. When he’s not leading strategic sessions with clients or developing innovative services like AI-powered bookkeeping, you’ll find Ian hosting The Leaky Bucket Podcast, sharing real-world insights on what makes businesses thrive (or leak cash!).

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