Are you discounting too much? A guide to getting discounting right in ecommerce

Are you discounting too much? A guide to getting discounting right in ecommerce | 4-minute read

As we enter Q4, with Black Friday and Christmas on the horizon, many ecommerce businesses are starting to think about their seasonal promotions, discounts, and offers.

There’s no denying that discounting can be a great way to generate more sales and encourage buyers to make the decision to purchase. According to Statista, 52% of ecommerce customers reported they would be more likely to make a purchase if they received a discount, while a study by RetailMeNot found that 80% of consumers expect discounts when shopping online.

However, if you’re considering offering a discount, it’s important to understand the financial impact it can have on your business. For example, research from McKinsey found that retailers who frequently offer discounts can see a 20-30% reduction in their profit margins. A study from the Journal of Marketing also highlighted that excessive discounting can result in lower perceived value of products, with 40% of consumers stating they associate frequent discounts with inferior quality.

In this blog, we’ll take a look at the benefits and pitfalls of discounting for ecommerce businesses, and how you can ensure you’re getting your discount strategy right.

The allure of discounting

Discounting is a popular part of the marketing strategy for many online businesses. As well as attracting new customers and encouraging existing ones to buy again, discounts and promotions can also help businesses to clear inventory, boot sales during slower seasons, and secure a quick influx of cash to hit sales figures.

However, while there are clear benefits, it’s important to keep in mind that, as well as offering short term gains, discounting also has long term consequences. While some quick sales can help to boost your income and support cash flow, they can also mask underlying financial issues, causing potential problems to go undetected until they risk damaging your business. Not only this, but discounts will, naturally impact the bottom line, reducing overall profits and impacting cash flow.

The hidden costs of excessive discounting

As we touched on above, if discounting isn’t done correctly and strategically, it can have a negative impact on the business’ finances.

When working out the pricing of your products, it is typically done around profit margins. Even if your products have a relatively large profit margin, any discount you offer eats into this. And, while it may not feel as though it’s having a huge impact on your overall turnover or income at the time, if you’re excessively discounting products and offering these discounts frequently, your profits can quickly be eroded.

In addition to the financial cost, excessive discounting can also have an impact on perceptions of your brand, de-valuing your products and creating a discount mentality amongst consumers. And, if consumers no longer view your products as worth their full price, they will be reluctant to pay it, reducing sales overall.

The role of accurate financial insights in a discounting strategy

So, if poorly planned discounting can have a negative impact on your business, how do you get it right? The key is ensuring that your strategy is informed by data. Accurate, comprehensive financial data will enable you to make data-driven decisions not only when planning your strategy, but also when reviewing its effectiveness.

Monitoring metrics such as profit margins, customer acquisition cost, and lifetime value will ensure that your discounts support your growth rather than limiting it.

The benefits of outsourcing your accounting to an ecommerce specialist

With an unparalleled understanding of the unique challenges and opportunities of the industry, a specialist ecommerce accountant will be able to provide tailored advice and expertise on discounting and pricing strategies for your ecommerce business.

And, by leaving the metrics and projections in their capable hands, you’ll be able to focus on what you do best – running your business.

Why choose Unicorn Accounting?

Ensure you keep on top of your finances and tax obligations by outsourcing to an accountant. This means that you don’t need to worry about your end of year accounts, payroll, or bookkeeping requirements.

At Unicorn Accounting, we are e-commerce accountants who help make your online business a growing success. We offer e-commerce accounting advice, financial management bookkeeping, cash flow statement, and tax filing services to support and scale your business.

Our team of accountants and Xero certified advisors have experience working with both small start-ups and family run online stores to large scale, international retail and e-commerce brands.

If you’ve got an online store, we have the best solution for you. Providing you with a financial arm to your business through our sector experience and skills with innovative technologies. To see how we can help you maximise the scalability of your e-commerce brand all year round, get in touch with Unicorn Accounting today or click here to get a free quote.

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