How to Use Discounts on Your Website

Discounts can be a powerful lever to increase sales figures and build customer loyalty. Using discounts effectively, however, requires an understanding of the types of discounts at your disposal and knowing when to deploy them. 

Using discounts in a strategic way will delight your customers and pay dividends for your business. Take the time to learn how to develop a discount strategy and experiment with different types of discounts to find out what works best for you and your business.

How to develop a discount strategy

Are you looking to attract new customers, increase average order value, clear out seasonal stock, or build customer loyalty? Having specific business goals will guide you toward the right discount strategy. 

Be very clear on why you’re using discounts to understand which ones best apply to your business and how to write a discount offer. Here are the most common reasons to use discounts.

• Increase sales: It’s a no-brainer that discounts are excellent for attracting new customers and increasing overall sales. 

• Boost average order value: Average order value is calculated by dividing the total revenue by the total number of orders placed over a specific period of time. Setting minimum purchase requirements to trigger discounts or bundling products can encourage customers to spend more on each purchase. 

• Build customer loyalty: Offering exclusive discounts to repeat customers or members of a loyalty program can create a sense of appreciation for your customers and encourage repeat business.

The key is to align your discount strategies with your business goals and your pricing strategy. Discounts should help you make progress on a goal without underpricing your product. 

Monitor the performance of each discount and make adjustments as needed. Some key metrics to pay attention to are:

• Sales volume

• Average order value

• Customer acquisition rates

• Profit margins 

Adjust your metrics based on the goals you’ve set. Consider creating personalized discount offers based on purchase history or demographics to make your discounts more relevant and appealing.

The different types of discounts

Discounts aren’t one-size-fits-all; there are many different types of discounts to offer your customers. Understanding each is the first step in developing a discount strategy for your business. Here’s a rundown of the most common types of discounts and when to use them.

1. Percentage discounts

We’re confronted with percentage discounts every day. Percentage discounts offer a reduction by a certain percentage of the original price, such as 10% or 20% off. This type of discount works with price-sensitive customers or first-time buyers. They can be used in seasonal sales, clearance events, or special promotions.

It’s important to make sure the percentage discount you offer is significant enough to entice shoppers without putting a dent in your profit margins. Bold messaging often works to highlight percentage discounts on your website and in marketing emails or posts.

2. Dollar amount discounts

Dollar amount discounts are a fixed reduction from the product’s original price, such as $5 off. They can be presented as a coupon or discount code, or used to encourage customers to reach a certain threshold to qualify for the discount. 

For example, if a customer spends $100, they trigger a $20 discount. Dollar amount discounts are effective for products with relatively low prices because customers can clearly recognize how significant the discount actually is.

3. Buy one, get one free (BOGO)

Buy One, Get One Free deals offer customers a free product when they buy another product at full price. BOGO deals are very effective for moving products quickly. They can work well for consumable goods, like olive oil, or fashion items and accessories. 

Use BOGO deals to clear out excess inventory or when introducing new products to encourage interest. As always, be careful that the cost of the free product doesn’t eat into your profit margins.

4. Free shipping

Free shipping is a simple-to-understand discount that can reduce dreaded cart abandonment rates. Shipping costs can be a primary reason people decide not to buy, so remove that barrier for them. 

Free shipping works for attracting first-time customers and encouraging larger orders. Sometimes businesses set a minimum order value to trigger free shipping, such as “Free shipping on orders over $50.”

Get more tips for setting shipping rates

5. Volume discounts

Volume discounts give customers a reduced price when they buy in large quantities. Obviously, this type of discount encourages customers to buy more, increasing the average order value due to volume. 

Volume discounts are useful for businesses selling products that customers are likely to buy in bulk, like office supplies, food items, or beauty products. They’re also useful for selling off excess inventory at the end of a season or before launching a new version of a product. Make sure that your discount incentivizes larger purchases without impacting profitability.

6. Seasonal and holiday discounts

Seasonal and holiday discounts are time-limited promotions tied to specific dates or events, such as Black Friday, Christmas, or back-to-school seasons. These discounts can create a sense of urgency and encourage customers to make purchases they might otherwise postpone. 

Plan your seasonal discounts well in advance and align them with your marketing calendar. Use countdown timers and limited-time offers to increase that sense of urgency.

Timing your discounts

After experimenting for a while, you will develop an intuition for what your customers want and when. But it’s also important to follow the data so your timing supports your discount strategy and goals.

Consider your business cycle

Take a look at your sales numbers to identify peak times and slow periods in your sales history. Do you notice any patterns? If you have enough sales data, certain stories begin to emerge. 

For example, if you know that sales typically dip during the late summer months, offering discounts during this period can help maintain steady revenue. 

Consider the seasons

Seasonal and holiday discounts are great because they tap into general consumer shopping habits. Consumers are obviously looking for deals around Black Friday, Cyber Monday, and major holidays. 

Consider industry-specific events or seasonal changes that impact your buyers. For example, back-to-school promotions will be beneficial if you sell educational products.

Consider market trends

What are your competitors doing? Being informed about market trends can give you invaluable insights for timing your discounts. If competitors are offering significant discount examples during a particular period, consider matching or differentiating your offers in some way to stay competitive.

Balancing discounts with cash flow

Offering discounts can attract customers, but you need to make sure that too many discounts are not eating into your profit margins. Calculate the impact of discounts on profit by considering the cost of goods sold (COGS) and the expenses associated with each unit of sale. This will help you determine the maximum discount you can offer without compromising profitability.

Maintaining a healthy cash flow is key to operating a sustainable business. Discounts drive sales, but they can also impact cash flow if not managed carefully.

Discounts should be a key piece of your sales promotion strategies. They can have a huge impact on your business. But you need to understand your goals and how to effectively time your offers to maximize sales. Experimentation is the word of the day. Try different discounts, see what works, and adjust as necessary.