Why Offering Discounts Will Put You Out of Business | Discounting for Online and Offline Businesses

I used to believe that giving people discounts would make you more money, but that’s not the case. Today I’m going to share with you why discounting is the wrong strategy and it will put you out of business.

Discounting is for Dummies – Here’s Why And What to Do Instead (video):

The RIGHT Way to Drive More Online Sales By Discounting Your Products (video):

Most people think that “Hey, Cyber Monday, Black Friday, big corporate contracts, why not give discounts? I’m making good money, I have good margins. It’s a great way to boost my sales.”

That’s a wrong philosophy.

What works for Amazon won’t work for you. What works for Macy’s, or Nordstrom, all these other big companies, in most cases, won’t work for you.

And especially if you’re in B2B or in the enterprise world you should never give discounts. It’s the worst thing that you can do.

The first reason why is it sets a bad precedent. You don’t wanna set a bad precedent. The moment you do that, what you’ll find is when people are like, “Oh yeah, you’ll give me a discount? Cool, what else can I get from you?”

They’ll keep asking you for more and more and it’ll never stop.

In addition to that, they’ll also ask you to do more things in the same price. That’s going to attract customers that are the wrong fit for your business.

In which, you’re going to be doing work for them, you’re going to be miserable, they’re not going to be satisfied because you’re not doing a good job for all the extra things that they’ve asked you for.

Plus, you’re not really making any money. You don’t wanna be in that position.

The second thing that I learned is it ruins your brand.

Yeah, the people who buy stuff at a discount may be happy, but all your normal customers who buy from you, which is a majority during normal times, will not be happy because they’re not getting the discount.

You don’t wanna ruin your brand. And if you don’t wanna ruin your brand, stop offering all of these promotions.

Sure during the holiday times, yeah, you may get a boost of sales, but it doesn’t last for long.

And let me go into the third lesson I learned why you shouldn’t be offering discounts. And this is somewhat related to number two.

Now one of my companies, we used to offer a discount.

We found that when we offered a discount, the people who signed up not only grumbled more, caused more support issues, but they churned 29% faster.

Not only were they paying us less, but they were also grumbling more causing more support requests, and they were churning much faster and it was causing us to make less money.

For that reason, we stopped offering discounts altogether.

The fourth reason is you devalue your product or service. You’re going to look cheap. You wanna go upstream, that’s how you make more money.

Devaluing your price, discounting it, is not going to get you there. What you’re going to find is, if you’re giving a discount, people like, “Oh, wow, this isn’t the premiere solution.”

You’re not going to go to Goldman Sachs and ask them for a discount. You’re not going to go to a big company and expect them to bend over backward and give you the price that you want.

That’s not how the world works. Because they know if they give you a discount, they’re going to reduce their margins, they’re not going to be able to provide the service that your customer deserves.

And you gotta think about it. With my ad agency Neil Patel Digital, we help companies grow their marketing. We get them more traffic, more sales. When people come to us asking for a discount, and if we gave them, and we do not do this, but if we give it to them, we won’t be able to provide them the same service because it screws up our margins and in some cases, or in many cases, we can actually lose money on an account.

Why would we want to do that? Because if we lose money, we’re not going to be happy.

There’s no point in us working and actually putting money out of our pocket to fulfill a client.

And the last lesson I have for you is you’re attracting the wrong type of customers. It’s not just about getting a sale, it’s about having customers that last long, that you can upsell, you can downsell.

And when you give discounts, those type of customers aren’t going to keep buying from you unless you keep offering more and more discounts.

It creates a bad habit.

So don’t just optimize for short-term income, optimize for long-term income by not giving a discount.

Optimize for your lifetime value of your customer.

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