‘Discounts Are Not Always the Answer’ – How Discounting Ruins Your Business Profits?

For business owners, the single most important aspect is deciding their product/service pricing. “How much should I set the price for my services/products?”

A lot of business owners include discounts on their offered products and services as a means to attract more customers and incur profitable sales. But these discounted aren’t always the answer to yielding more business profits. And more often than not they can ruin your business profits.

Here’s a post which discusses how. So follow closely.

It Hampers Your Business Profit Margin Considerably

For every added discount, the sales will need to work harder. When you sell your products/services at its full price, your profit margin is also high. But when you sell it at a discounted rate, your profit margin decreases and more sales need to be made to compensate the lost revenue.

In words of quality business accountants serving in Reading – If your profit margin is say 30% and the discount you offer is 10%, then you will need to incur 50% more sales to make up the same lost profit.

It Also Causes Cash Flow Issues

Along with ruining your profit margin, discounts also tend to hamper your business cash flow. Top business accountants and cash flow specialists state that- it all boils down right to your business bottom line.

Most business would prefer procuring their cash flow (even by selling their business at discounted prices). But if any changes occur in the business top line, it simultaneously hampers the bottom line (even if it was due to a small discount).

It Also Reduces the Perceived Value of Your Business Product/Service

The price you set for your business products/services always sets the tone. Your targeted buyers will show interest in your product and even value them depending on the price it is offered. But when you add a discount to it, then psychologically your buyers think of your items as a blemished or cheap-quality one.

The wise choice would be to focus more on the real value of the offered product/service to build customer confidence. Adding discounts to your products can sometimes weaken the perceived value of your business offerings and even undermine the buyer’s confidence in your products/services.

It Sabotages All Your Future Expectations to Maximise On a Large Scale

Every business runner wants to grow their business and expose their products/services over a wider client base. But discounting can foil all your future business opportunities to increase your profit margin.

Once your customers see that you offered discounted prices for your products or services before, they will keep expecting the same low prices every time.

What’s The Solution?

Top accountants and business specialists in Wokingham recommend Value Pricing.

Again taking up the first example –

If your profit margin is say 30% and the discount you offer is 10%, then you will need to incur 50% more sales to make up the same lost profit.

Now if you add an extra 10% on your product price (based on its value), then you may afford to sell 20-25% less without jeopardising the profit margin.

So, always give importance to Value Pricing and tangibly showing your buyers that your product is of top-quality. It will help earn their trust and confidence in your business.

And if you need professional guidance on how to keep your profit margin and cash flow from getting hampered, then get in touch with a professional accounting company for expert guidance.