When a business owner – franchisee or not – is looking to do a sale or some sort of promotion or offer something through their marketing efforts, their first thought is to discount. There are two reason why I don’t suggest this as the optimal strategy.
The first thing is that the world has changed. Offering a 10% discount is not really enticing to customers anymore. In fact, unless you are offering 50% off or more, it won’t really capture your customers attention. You need to be a little more creative than a simple percentage off in this day and age.
The second reason I’m cautious when a business owners tells me they are going to do a discount promotion is that often times they haven’t done their numbers on the promotion.
Let’s say you are selling burgers. The burger, in just food cost alone, costs you say $2.50. You are selling the burger for $5. If you sell the burger for 50% off, then you are now not making any money and in fact you would be losing money. Remember, it is not just the cost of the product you need to account for, but what about your overheads such as your lease or staffing costs or electricity, tax, the list goes on.
To often business owners simply act too fast and don’t consider the consequences of their decisions to discount. Before you offer any sort of discount, do your numbers otherwise you are not discounting your products, you are taking profit from your pocket!
I like to add value. Say with the burger above, (this is something you can see most food places have worked out) and add a drink and fries to it. If we sold each of these items on their own, the total may come to say $10.95 and the total profit would be $5. You could offer this as a ‘meal deal’ at just $9.95 and so you are only losing $1 of profit, but in reality, because you have increased the sale amount, you are getting $1.50 more profit than if you sold the burger just on it’s own.
If you had a clothing store and you were selling jeans, then you could do an offer where if you buy one pair of jeans you get 2 t-shirts free. Still making great profit, but not devaluing your core product.
If you are continually discounting your core products, then your customers will always want them to be discounted. Why should I pay $50 today when last week it was $25 and next week it will be $30? Why pay full price because ‘obviously’ you are putting extra money onto it so that you can discount it? Have you heard customers say things like this? I have.
If you are in a service based business, then look to package up services rather than discount your service price. What about if people buy a pack of 3 and get the 4th one free or similar. You need to be careful with service based offers because they are so easy to discount as it is your time and most business owners, franchisees in particular that are self employed, do not value their time at all and will consider working almost for free. Again, you are discounting your core product offering which is what you can do for your customer.
Next time you go to discount, simply ask yourself, ‘How much of my profit am I willing to take from my pocket and give to my customers?’
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