The Hidden Cost of Discounts: Which Pricing Strategy Actually Works for Your Business?

BOGOFs, new-customer promos, bundles, loyalty deals, flash sales.

Because everyone’s doing them, it probably feels like you should. 

But most business owners don’t know which ones actually make financial sense for them. Pick the wrong model and you could be heading for disaster. 

Let’s look at three common discounting approaches and explore who they work for (and who they don’t).

Where you see it: Retail, wholesale, physical products.

Here’s the maths that catches most people out:

• Selling price: £500
• Cost: £350
• Gross profit per unit: £150 (30% margin) 

Run a 15% promotion and your price drops to £425. So your gross profit falls to £75. 

Your customer-facing discount may have been 15%. But as a business you haven’t lost 15%, you’ve lost 50%. 

Now, just to stand still, you need to double sales volume. Most businesses can’t do this, so the effect of the discount is that they work harder and earn less.

Rule: If you can’t confidently sell the extra volume, don’t discount.

Works for: Hotels, airlines, events and venues. 

A room lying empty in your hotel tonight generates £0, but costs you £15 in overheads to maintin. Sell it for £80 off season, and you get £65 profit you wouldn’t otherwise have.  

If you’re open off season, it’s better to sell rooms for less than not at all.  

Filling unused capacity, even at lower prices, makes sense and can boost profit.

Rule: Discount to fill quiet periods,. Never discount in the high season though.

In many coaching and training programmes, financial commitment drives engagement. The more a client pays, the better their results. 

Full-price clients engage and get results. Discounted clients typically don’t (and the full-price ones are annoyed). So don’t discount.

Price paid = perceived value = commitment = results.

Better alternative: Cap the premium programme and create a separate entry-level offer, which doesn’t offer the same transformation cheaper, but is a shorter foundational offer that builds trust, from where you can upsell into your premium offer.

Rule: Don’t discount transformation. Segment instead.

The same discount strategy can increase profit in one business and be fatal in another.

Before you discount, ask:

• What economic model am I in?
• Am I filling used capacity or destroying my margin?
• Does commitment affect results?
• What could I add instead of cutting price?

Know which game you’re playing.