Running a business

What To Do About Pricing Discounts

Although service and product discounts have a variety of benefits, they need to be used with caution. If discounts aren’t used correctly, they could leave a negative impact on your small business, like a loss of reputation or profits.

To avoid these situations, you need to develop a strong discount pricing strategy that is specifically tailored to your business objectives. 

Why Offer Customer Discounts?

Using a reduction in price to attract consumers seems simple, but a good discount pricing strategy begins with understanding the needs of your business. Knowing what you want your end goal to be will determine if discounts are right for you. Therefore, it is important to be familiar with all the discount benefits to identify if these benefits match your specific goals.

1. Increase customer retention

If your goal is to increase customer retention then discount pricing strategies can work for you. Sometimes businesses experience customers who seem satisfied with the product or service, but they don’t end up returning. 

A great way to remind these customers of your business is through a discounted price. It will give them a friendly nudge reminding them of the positive experience they had with your business and invites them to return – meanwhile, making them feel valued, and thought of.

2. Attract new customers

If someone is new to your business, they may be apprehensive about spending their money with you. A discounted price offers them an incentive to try something new without feeling like they are risking too much. 

Another great way to attract new customers is by selling gift cards. Use discount strategies with gift cards for your business by offering a few extra free dollars when a customer buys X amount.

3. Boost sales

While discounted prices are a cost to your business, they also have the power to increase your sales. Implementing a discount strategy adds a layer of time sensitivity to your customers’ purchasing journey. In turn, you’ll likely see an influx of purchases during the duration of your offer. Consider using this limited-time offer to hit your sales targets. 

4. Get more people through the door to your site

Having coupons on your website will increase traffic and improve your ranking for SEO. There are millions of coupon-related searches per month, so this becomes a great opportunity to attract people who are already looking to buy. 

You can also send discount codes in the business’s marketing emails, offering a discount and linking back to your site. As well as partnering with influencers to promote your discounts, that could also lead back to your website.

5. Push old inventory

Even the most successful businesses run into problems like slow-moving inventory or excess stock. This usually happens at the beginning of the year or at the end of the season when new products come into demand. Instead of clutching onto these items, it’s better to have a reduction in price to attract consumers. 

Types of Sales Discounts

Knowing how to do discounts properly will help you reach your targets. However, in order to be strategic, you need to know the types of discounts available. This way you can tailor your discount strategy to your specific business needs.  

Payment method

This could encourage customers to use specific payment gateways or cash. If you have a preferred payment method, placing a discount on that method will encourage your customers to use it. For example, if you want to promote cash payments, offering a 5 to 10% discount on a customer’s purchase if they opt to pay with cash can help you achieve this. 

Percentage discounts

If your business has high profit margins then you can offer higher discounts of 15-30% off and discount more frequently. With low-profit margins and higher-end brand appeal, it’ll be better to offer smaller discounts or less frequent sales promotions.

Member discounts

Membership cards provide companies with an opportunity to add value to their customers. The cards offer added benefits such as discounts on future purchases or privileges. For example, this card could grant access to a members lounge at an airport, or provide early access to sales. You can offer the cards for free or you can give them at a charge if they offer high-value privileges. 

Volume discounts

A volume discount can be applied after a customer purchases a predetermined quantity of goods or services. The volume discount can be applied retroactively (covering all preceding sales during the measurement period) or it can be applied to all subsequent sales. 

In the first case, the business can offer the customer a credit that relates to the retroactive purchases. These types of discounts will encourage customers to purchase your goods in large quantities, allowing for a higher turnover of inventory and greater sales in general. 

Seasonal discounts

A seasonal discount would be offered at certain times of the year when business is slower than normal. For example, a ski resort may offer discounts in the offseason for their summer activities. Or clothing stores may offer discounts on knit sweaters during the summer. 

Two for one

For this discount, a customer may receive two of the same product, or it could allow for a free item that differs from the original purchase. This discount is used to clear out inventory, or in general when the gross margin on a product is high enough to still generate an adequate profit for the seller.

Bundle discounts

bundle discount requires the customer to purchase a combination of different products. Companies sell the bundle for a lower price than would be charged for items individually. Offering discounts can stimulate demand, enabling companies to sell products or services they otherwise would have difficulty offloading and generate a greater volume in sales. Over time, this approach might even help to cancel out sacrifices in per-item profit margins—selling an item for less means squeezing less profit from it.

Types of Discount Offers

Your business doesn’t necessarily need to hold sales to provide discounts to customers and potential customers. Discount offers can be personal or public codes offered to consumers as an incentive to purchase your goods or services at a reduced price. Discount offers can be used in numerous ways to increase the turnover of inventory and attract new customers to your store. 

First-time buyer

If someone is new to your business, they may feel apprehensive about spending their money with you for the first time. To mitigate their risk, you can offer a discount for new customers. You can tailor your organic or paid content to communicate this message to attract potential consumers. It could be related to a new product or service by offering a free gift to first-time buyers. 


referral program is a growth marketing tactic that encourages existing customers to recommend a brand to their friends, family, and colleagues. This is often called word-of-mouth marketing. It aims to improve latent word of mouth by implementing easy-to-use sharing tools and referral rewards.

Loyalty rewards

Loyalty programs are designed to reward customers for repeat business. These programs reward consumers by providing discounts and other special offers. Such rewards are great at developing customer loyalty, but they also provide valuable information about the consumer. The loyalty program will give the business owner insights into customer spending habits, like when they are buying, what they are buying, and which offers are most appealing to them. 

Benefits of loyalty programs include, but are not limited to: 

  • Early access to new products and services
  • Early access to sales
  • Free items
  • Enhanced services 
  • Member-only discounts

Email subscription

To encourage people to sign up to your mailing list you can offer them a discount in exchange for their email. This will reassure them that they are not giving up their information for no benefit. However, it is important to note certain restrictions apply to using customer emails, like the consumer protection law known as CASL. Therefore, ensure you receive the express permission of your customers before using their emails to send out sales discounts.

There are different types of email coupons so you can choose which one best suits your needs. These include:

  1. Discount codes
  2. Buy one get one free (BOGO)
  3. Free Gift
  4. Free Shipping 

Product reviews

Product reviews can vary from regular everyday people to popular social media influencers. Either way, the goal is to get you more buzz. Offering your consumers a discount price incentive for a product review will help new customers become familiar with your product. 

People search for reviews before they buy to see what other people’s experiences were. If they see positive reviews on your items, that will instill a sense of trust in your product. This can be especially beneficial for acquiring new customers to drive sales. 

Abandoned cart offers

If you notice people filling up their cart with products from your website but never end up hitting the check-out button, you may want to try abandoned cart offers. Such discounting incentives give people a small nudge reminding them of the items they were looking at. It also has the added benefit of giving people offers on products you know they were already interested in, so there is no guesswork on your end. 

Tips on Discount Pricing Strategy

Your discount pricing strategy will depend on your brand, industry, products sold, and all the small details in between. Now that you know about the specific types of discounts, and discount benefits, here are a few strategic factors to consider when creating your plan.

Consider your margins

When deciding your discount strategy, it’s important to consider how the sale is increasing your net profit, not just gross revenue. To figure this out, you must consider how the discount will change your profit margin, and how much more inventory you need to sell to make the discount profitable. 

Let’s say you’re selling something for $100 and it costs you $60 to produce each item – meaning you are making a $40 profit on each item. So if you offer a promotion with a 20% discount, you will now be selling each item for $80, making a $20 profit (instead of $40). In order for your net profit to stay the same, the number of items sold needs to double. 

Take customer lifetime value into account

Retaining customers will increase your customer lifetime value , and you can potentially increase retention through discounts. A key consideration when dispersing your discount is to think about which customers match your target market profile. For this reason, many companies create buyer personas when creating marketing plans and sales strategies to identify their target audience. 

Based on this profile you can determine which people are worth spending a little extra on -with discounts- if it means they are more likely to return. Additionally, you will be saving costs by not offering discounts to people who you don’t think will add to your overall CLV. 

One way to stay on top of your pricing strategies and keep tabs on your business’s cash flow is with QuickBooks accounting software. Start tracking revenue from your discount sales with QuickBooks Online today with a free trial. 

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