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A 10% DISCOUNT IS COSTING YOU MORE THAN YOU THINK.


Discount sale sign

Promotional discounts are a great way to attract customers and boost sales. But before you jump on the discount bandwagon, it's important to understand what exactly a 10% discount REALLY costs your business.


It's easy to get swept up in offering discounts in order to make a sale, but it's also important to remember that discounted prices come straight off your profits; your costs remain the same no matter how much or how little you charge for your product or service. You could offer a 20%, 30%, or even 50% discount, but that doesn't mean you're doing your business any favours in terms of increasing profits.


Let's take a look at some basic numbers to determine just how much that discount will set you back in terms of gross margin.


Example: Average Order Value (AOV) is $120 and Gross Margin is 40%. This means our gross margin without taking the discount into account is $48.


Now let's see what happens when we introduce the 10% discount for customers... the gross margin drops down to $36! That means that by providing the 10% discount, we've taken a 25% haircut on our margin.


The key takeaway here is that while discounts can be beneficial for attracting customers, it's always important to consider the financial impact they have on your bottom line before offering them up too freely. It may be tempting to rely on discounts as a marketing tool, but make sure you know exactly how much those discounts are costing you before jumping in headfirst!


A 10% discount might seem like it won't hurt too much, but if you calculate it properly, you'll find that it could actually completely destroy your profit margins.


So, next time you're tempted by discounted prices, take some time first to think through what kind of impact they will have on your business' bottom line. By understanding exactly how much each customer-focused promotion truly costs you before you dive in, you can make sure these discounts are working FOR you rather than against you!

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