June 24, 2016

Building Discounting Into Your Pricing

small business financialsAt some point or another the time will undoubtably come where you’ll want to do some type of discounting on your products’ prices.  This may be a holiday sale you want to run on your online site, a friends and family discount you want to give to your most loyal farmers’ market customers, a promotion to help inventory turns at your local retailers, or any number of other reasons.  If you haven’t accounted for this discounting ahead of time though, you may find that any discounting you want to do will leave you making mere pennies per product.

Pricing is, without a doubt, the #1 question I get asked from food entrepreneurs.  Ultimately there is no sure-fire way to determine exactly what your products’ prices should be.  However, we’ve certainly spent a fair amount of time on this site talking about the need to look at the margins you’re making and take a look at what your competitors are charging.  After you take all those factors into account though, you also need to ensure that you’re giving yourself room to discount your products when and if you ever need to.

I realize that for some of you the plan may be to never offer a discount to anyone for any reason, and if you can stand by that then more power to you.  However, having the flexibility to offer discounted pricing provides you with tools in your business toolbox that you can use if needed.

Tips To Make Sure You Can Afford To Offer Price Discounts:

  1. You need to know exactly how much it costs you to create your product.  A ‘I think it costs this much’ isn’t going to cut it.  You should know down to the penny.
  2. You need to understand how much, on average, you spend each month outside of product production (i.e., all the other costs associated with running your business).
  3. If you’ve already set your products’ prices, how much of a discount can you offer and still a) not go below the cost of producing the product and b) still cover your other monthly business costs?
  4. Given your current (or anticipated) product price and the factors above, how much of a discount can you offer.  You don’t necessarily need to offer the maximum every single time, but knowing that you can discount a maximum of $X helps you plan promotions that will still have you making money.
  5. Don’t forget that sometimes what may seem like a nominal discount, can be ‘reworded’ to sound better to consumers.  Saying that customers can save $2, for example, may not really have a big impact on them.  But saying that they can save 10%, even if this also equals $2, may sound bigger and prompt more purchases.

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