Discounting – Christmas Deals or Don’ts??
It’s that time of year again when everyone is getting excited for the bargains they might find in the January sales, which if you ask me have been getting earlier and earlier in recent years.
But if you’re in business and are participating in the sales season, be it the recent Black Friday, Cyber Monday, Shop Local Saturday, Boxing Day or January sales, or anything else in between for that matter, have you really considered whether it’s the right thing for you to do in your business?
Sales and discounts have got to drive something more. Can you use a loss leader to gain new market share who you will then sell again to at a ‘proper’ margin? Are you getting rid of a slow moving line which is tying up your cash and warehouse space? Did it start as a high margin product which you are still making money on? Or maybe it’s a thank you for your A Grade clients. It matters less what your strategy is, than that you actually have one. That your sales strategy is thought through, you know your numbers and have weighed the upside carefully against the downside.
Many retail businesses generate more than 50% of their annual income in the months from September to January, and some fail to realise that if they get their pricing and sales strategy wrong, they are running the risk of selling their way out of business and creating a cashflow problem which they may not survive.
Think about this for a moment: If your average margin is 40%, and you discount by 10%, then you have to sell 33% more just to stand still! So will your discount drive that much more sales? And how much more effort (time and money) will you have to put in to deliver 33% more sales?
Conversely, if your margin is 40% and you increase your prices by 10%, then you can afford to reduce your volume of sales by a full 20% while still making the same amount of money… guess which sales you are likely to lose? Definitely the more demanding ones!! So, reduce your sales volume by 20%, use the time saved to increase the value and service levels you deliver to your clients and concentrate on looking after your A Grade clients really, really well 🙂
If you’d like a little more on this, have a look at our video on the subject below, and as always, please do get in touch should you have any questions.