The Dangers of Discounting

 

If you believe discounting your prices will save and grow your business….think again

 

       The table indicates the increase in your sales that are required to compensate for

       a price discounting strategy. For example, if your margin is 40% and you reduce

       your price by 10% you need your sales volume to increase by 33% to maintain

       your profit. Rarely has such a strategy worked in the past and it’s unlikely it will

       work in the future.

                               If Your Present Margin Is …

                                    20%     25%     30%     35%     40%     45%     50%     55%     60%

         And you discount           Your sales must INCREASE by the amount shown

           Your Price by                   to keep the same Gross Profit …

       2%         11%     9%       7%       6%       5%      5%       4%       4%      3%

       4%         25%    19%    15%    13%    11%     10%    9%       8%      7%

       6%         43%    32%    25%    21%    18%     15%    14%    12%     11%

       8%         67%    47%    36%    30%    25%     22%    19%    17%     15%

       10%       100%    67%    50%    40%    33%     29%    25%    22%     20%

       12%       150%   92%    67%    52%    43 %   36%    32%    28%     25%

       14%       233%   127%   88%    67%    54%     45%    39%    14%     30%

       16%       400%   178%   114%   84%    67%     55%    47%    41%     36%

       18%       900%   257%   150%   106%   82%     67%    56%    49%     43%

       20%         –          400% 200%   133%   100% 80%    67%    57%     50%

       25%         –          –         500%   250%   167%   125% 100%   83%    71%

       30%         –         –               –        600% 300%   200%   150% 120%   100%

 

Discounting may have its place…to make friends, clear stock or meet a competitor BUT you must understand the impact of what you are doing.