5 Tips to Create a Discount Strategy That Doesn’t Cut into Your Profit Margins
Incentives can convince people to make a purchase they otherwise may have put off, build ongoing relationships with loyal customers, and more.
So how do you create a discount strategy that inspires your customers to take action without affecting your product’s perceived value or your bottom line?
How to plan your ecommerce incentives
Ecommerce experts from the UK, Spain, Netherlands, Australia, and more shared five of their top tips to creating a unique—and impactful—discount strategy:
- Measure profit over revenue
- Rethink (and test) your welcome offer
- Switch it up with alternative offers
- Time discounts strategically
- Offer discounts for high-value actions
1 | Measure profit over revenue
Do you know what the profit margin is of every sale you make? Hopefully the answer is yes, but if not, how do you know you aren’t sacrificing profit to increase revenue?
While your overall revenue shows how your business is growing, profit should be your north star to create a discount strategy that leads to sustainable growth.
“Focus on profit, not revenue. Revenue is a vanity metric and something you shouldn’t use to gauge the success of your business. I truly believe ecommerce success is all about making sure every order is profitable,” Brynley King, founder of Ecommerce Growth, advises.
"Focus on profit, not revenue. Revenue is a vanity metric."
Brynley King, founder of Ecommerce Growth
2 | Rethink (and test) your welcome offer
A welcome offer is a common inciting tactic to motivate your website visitors to hand over their email address.
Because a wide audience receives this offer, carefully consider and test what the optimal option is for your customers. One brand, Brava Fabrics, ended up with surprising results that ultimately benefited their profit margins.
“We used to offer a 10 percent discount if people subscribed. But when we tested a contest where people could win €300 in free products for signing up, we discovered the two offers performed identically,” Ivan Monells, Brava Fabrics co-founder explained.
By giving one customer a single gift card, the brand ultimately saved money, without sacrificing conversion rate.
As you explore what welcome offer is best for your brand, here are a few tests to consider:
- Giveaway vs. discount
- Higher percent off vs. lower percent off
- Percentage discount vs. set value (£X, $X, etc.)
3 | Vary your discount strategy with alternative incentives
A giveaway as a welcome offer is just one way to sweeten the deal for your customers without losing a percentage of your profit margin.
Finding compelling offers that add value for your customers will depend on your business, but here are some options to think about:
- Free gifts
- Free samples
- Free shipping (especially if it’s not already included)
- Access to special content and resources
For example, Huckberry offers customers a free shipping code in their abandoned cart email to motivate people to revisit the product they almost bought.
Similarly, Living Proof offers customers free samples with purchases, which has the added benefit of exposing customers to new products they might love and eventually repurchase.
4 | Time discounts strategically throughout the customer journey
Sales and incentives are often seasonal, with Black Friday and Boxing Day deals practically expected from some customers. While it’s true that timing is everything, the time of year isn’t the only thing you should consider when planning your discounts.
Focusing on critical moments in the customer journey—like after someone has just been browsing your website—is a highly effective and personalized way to offer incentives. Plus, you’ll avoid competing for attention during busy, traditional sale periods.
For example, after someone visits Bombinate’s shoe collection but doesn’t make a purchase, they receive a browse abandonment email that features several offers, plus personalized content about shoes.
Want to learn more about Bombinate’s marketing strategy?
Another critical moment in the customer journey is just after someone has made a purchase. The agency behind Smart Home Beveiliging’s email marketing has seen great success with offering an incentive to people who have just made a purchase.
“After someone makes a purchase but hasn’t bought WiFi Cubes, we offer them a special discount. We’re seeing great results—like an 83 percent average open rate and a 1.2 percent placed order rate—because it’s such a relevant offer,” Jesse Kroon, co-founder at Ecommerce Accelerator, shared.
"We’re seeing great results—like an 83 percent average open rate and a 1.2 percent placed order rate—because it’s such a relevant offer."
Jesse Kroon, co-founder at Ecommerce Accelerator
Bonus tip: This upsell email also highlights the urgency of the limited-time incentive, making people more likely to respond quickly. If you’re promoting an offer with an end date, feature it prominently in your marketing to inspire action (and make sure customers don’t miss out on the deal).
5 | Offer incentives for high-value actions
When you offer a customer an incentive, your brand should always get something valuable in return. Most commonly, a discount increases the likelihood someone will make a purchase.
But there are other high-value actions you can reward your customer for that might be even more valuable than a one-time purchase.
For example, Naked Harvest uses a small incentive to motivate people who have already made a purchase to leave a review—which not only gets the brand a review, but a second purchase, which takes the customer one step closer to being a loyal brand advocate.
Brava Fabrics has a similar reward for a customer review, but they take it one step further by also giving customers who leave a positive review an extra discount code for a friend.
“When you give something a five star review, you’re likely to recommend it to a friend. So if we know our happy customer is going to share our brand, why not make it easier?” Ivan Monells, Brava Fabrics’ co-founder shared.
This refer-a-friend code gives a satisfied customer a reason to become a brand advocate. Plus, when they pass the discount along, they’ll likely share their positive experience with the brand, increasing the chance that Brava Fabrics gets a new customer.
What incentives will your customers respond to?
If you keep profit and not just revenue at the top of your mind, you’ll be better able to create a cost-effective discount strategy.
Use these ideas from other brands to test different incentives and figure out what inspires your customers to make a purchase. Plus, remember that A/B test results can surprise you, so always look at the data behind the discount before you commit to a new tactic.
By building relationships with your customers and using incentives as a way to inspire them rather than using them as the basis of your entire marketing strategy, you’ll give your customers value while showing them your products are worth every penny.
Want to learn more about how to build relationships with your customers? Read about how this UK apparel brand is taking on fast fashion—and driving 40 percent of email revenue with automated flows.Back to Blog Home