The very first thing I want to do is to make a distinction between a promotion and a discount.
A promotion is initiated by the seller to create demand and excitement around a product.
It lowers the barrier of entry to become your customer because your item costs less. The intention of a promotion is to generate repeat business that offsets the cost of the promotion. If you’ve priced your items correctly, you’ll have the ability to temporarily lower the price of your items without pricing below your wholesale cost.
Promotion is an investment in your business if done correctly.
When you run a promotion, your goal is to have people add a non-promoted item into their order or come back in the future and be wiling to pay full price at that time. Price drops can also be used by the seller for liquidating seasonal items and that’s totally fine, just do your best to not make your work appear cheap.
Discounting, on the flip side, is initiated by the buyer in a haggling situation.
This also lowers the barrier of entry but they are just trying to save money. They don’t see it as an investment like you would with a promotion. You’ve probably experienced this at least once and it can be very stressful. They want to pay you less than your preset retail price for one valid reason or another and it can be tempting but I recommend sticking to your price because revenue is vital to business.
When I was 21, I started a cake decorating business. It was my first handmade business venture.
I had a good friend having a birthday party who was very well connected and already loved my baking. She reached out to me asking my prices and I had a moment of insecurity and excitement. I told her, “I’d love for you to promote my items, I’ll give you a discount.”
We set terms ($25 for 50 cupcakes.) I would never recommend someone sells at this price knowing what I know now, but I obviously had a lesson to learn at this time. One day before the party, she messaged me saying that she was going to need more. 10 more people than she anticipated changed their RSVP’s and so she asked me to make a centerpiece cake but told me that she couldn’t afford to spend any more money. I had already made the rest of her order so I said yes but I regret that as well.
Overall, that order cost me $40 in ingredients and packaging. I wasn’t even accounting for labor but if I was paying myself $10 per hour, The total cost to me would have been $100. She paid me $25.
I lost $75 dollars ($15 actual dollars and $60 in labor costs) on that order.
To add salt to the wound, people loved my cakes and she was very forthcoming with the amount she paid for them.
This ended up generating a string of severely underpriced orders which ultimately led to me closing my doors. All because I didn’t have the courage to stand up for my retail prices on that initial call.
I’ve since run several handmade businesses and have learned to stand my ground on my price- even on a slow month when I don’t have a lot of sales.
Here’s what I’ve done regarding discounts in my businesses:
1. I created a loyalty program that rewarded spending! If someone asks for a discount, you can say, “I don’t offer discounts but I do have a loyalty program. For ever $50 you spend, you get a $5 coupon off your next item.”
What this does is requires them to spend the full retail price while rewarding their business. It also teaches them to understand that you price your items at the place you’re going to sell them. Point blank.
2. I gave a very low cost item in addition to their order. This is something that cost me less than a dollar to make or buy. You can say, “No, I’m not offering a discount but I’ll throw in some extra goodies that you’re sure to love.”
3. I became more direct with people who were persistent! I would say, “I’m glad you want to support my business but in order to actually support my business, you’ll need to buy the products at their retail price. In order for me to continue running this business and for me to be able to continue producing these items, I can’t shortchange the costs.” It can be uncomfortable but it is so worth it!
Some things to consider:
- When you start discounting, it becomes difficult to stop. I had to shut down my cake business because I could never recoup the costs with the low prices I was honoring.
- Once you start discounting, people get used to that. They start telling their friends, they start sharing those prices with other people and so when people come to you, they are expecting those low prices and it becomes a huge hassle having to tell every referred customer that your prices are actually a bit higher than they previously thought.
- Discounting hurts your current and future customers over the long term. I had many sad customers when I finally shut down my shop but those same customers were uncomfortable with me “raising” my prices. Think of all the people who never even got to try my cakes. Think of all the people who were wanting to make an order but I had already shut everything down.
The very best way for you to continue your business at a sustainable level is for you to get your pricing strategy right in the beginning. If your pricing game is weak and you’re getting hundreds of orders a month, it won’t matter. You will be working more but making less. If your prices are set strategically and with room for short promotions, that increase in sales will actually benefit you in the long run because you’re still making enough to keep your business going AND gaining new customers.
I highly recommend my Cost Analysis Workbook to get your pricing strategy set up correctly. It’s only $7 at the moment and is available for instant download. It walks you through every step of pricing and can be printed out over and over for as many products as you’d like.
Join the newsletter
Subscribe to get the latest sales and marketing tips delivered to your inbox every Wednesday!