Does Discounting Make Sense For Your Small Business

Consumers are always looking for a bargain. It is something psychological that is built into us; we all want to save money on a product or service. Receiving a discount makes us feel special, like we are getting something for a lower price than most others are paying. There is also a certain sense of accomplishment when we buy something at a discount; the pride of knowing we are receiving good value for our hard-earned money. Small Business Accountant

You have probably noticed that many retailers seem to always be running a sale. Every other week, they run their next “biggest savings of the year” sale with coupons and all kinds of fanfare. And yet, even though we know full well there will be another sale in a couple weeks, we are still drawn to it, and most of us still think we are getting a good deal during these frequent sales.

So there is no doubt virtually all consumers love discounts, but does is make sense for your business to give them out? And if so, how often and how much? Here are some things to look at to decide if discounting might work for your business:

Industry: The industry you are in plays a major role in whether or not you should offer discounts. In retail, it is a no-brainer; unless your niche is top-quality, high-end merchandise, you will almost certainly need to do some kind of discounting. In other industries, such as professional services, discounting could cheapen your brand. You need to know your industry, competition, and customers; find out if your customers are expecting a discount, and decide how you want to compete for those customers; on price, quality, value or a combination of these.

Frequency of Discounts: As mentioned previously, continual discounting can work for some industries. However, you always need to be careful not to dilute the value of what you are offering. For example, if you have a banner ad on your website that says “50% discount if you act in the next 72 hours”, and this ad has been up for the past five years, you will eventually start to lose credibility with potential customers or clients. A better approach may be to offer discounts less frequently, such as once every three to six months. This way, customers will know they are getting a good deal when your products or services go on sale.

Targeted Discounting: The ability to track the movements of consumers online has increased the popularity of targeted discounts. With this method, you present customized offers to website visitors who took certain actions. A more simplified version of targeted discounting can be used to send offers to repeat customers via postcards or email.

The Tax Implications of Discounting: Of course, offering discounts can have an adverse impact on your bottom line and affect your tax situation as well. Before moving forward with a discount program, it is best to speak with your tax accountant about the tax consequences and whether or not discounting makes financial sense for your business.

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