How Discounts Are Fueling Your Startup's Identity Crisis
Discounts are a powerful tool that can wreak havoc on your business if used improperly.
It’s very tempting to leverage discounts when you’re a startup that needs a cash injection or a boost in sales, but there are a lot of negatives to introducing discounts without a strategic intent behind it. If you’re a startup, I actually don’t recommend that you introduce a sales event until you’ve solidly established who your purchasing customers are. Even after that point, discounts should be used with caution.
In the years that I’ve run startups and worked with my customers on their businesses, I’ve learned 3 important principles about startup pricing —
Pricing tells your customers who you are.
Pricing tells you who your customers are.
Fussing with your pricing too many times tips these scales and can leave you identity-less and customer-less.
If you manipulate your pricing too soon or too many times, your brand’s identity and your customers’ relationship with your brand never has the chance to solidify. Without a solid foundation, you lose the ability to create a consistent revenue model that your business can rely on every month.
The Brand That’s Always On Sale
Throwing a sales event when you’re low on cash is not a beneficial use of discounting. In my mind, this type of discounting produces short term gains for long term losses. Although the immediate cash may help your business, it can inflict damage on how your brand is perceived amongst your customers.
When you have sales often or only reach out to your customers when you have a sale, you’re basically priming your customers so that they wait out on their purchase until the next time you have a sale. You become known as the brand that’s always on sale rather than the brand that sells beautiful office supplies. When you allow discounting to be at the forefront of your interactions, you allow your startup to only be remembered for.. its discounts.
To remedy this, you should get into the habit of reaching out to your customers consistently to deliver value — share helpful content and advice, and share the awesome features of your product. Lead with value rather than discounts. Challenge yourself to sell products under this system and do not think about throwing a sale until you have a consistent flow of non-sale customers.
(Side note: This is obviously a difficult play to make when you need to pay your bills this month and you have $0 sales. Do what you need to do during these times, but make sure that the times you cut deals to pay the bills is negotiated through private channels. Do not broadcast this sale through your more public channels so that you can retain your brand’s identity while you’re still building your business.)
There’s no point in throwing sales events to entice purchase from an audience that’s not buying at full price. Under this strategy, you’re building a customer base of sale only customers and not full price customers. A reliable business model needs a predictable flow of full price customers in order to last.
Can You Replicate Your Sales Numbers?
Another downfall of throwing sales too soon or too many times is that you lose the opportunity to build a consistent revenue model. A consistent revenue model allows you to collect a paycheck every month, prove that your business works, and give you the solid ground to start growing the business (and turning a profit!).
If you see a large influx of sales during a sales event and aren’t able to replicate that cash flow again, you don’t have a consistent revenue model nor a real business. You’ve basically traded short term gains for the chance of building a viable business and have to go back to square one of building your business.
Don’t sacrifice your startup’s identity to produce a one-hit wonder. A one-time cash infusion is nice, but the reality is that your expenses recur monthly. Build a business that can meet your monthly expenses!
Nail down the full price version of your startup first before introducing sales events. And when you do introduce sales events to your customers, have it be a signal of positive changes or a generous act. Put on a sales event to clean out last year’s inventory so that you can usher in a better, more updated line of products or maybe you had a killer quarter and have the financial room to generously lower the price of your hottest item because you want to help more people learn public speaking. Whatever it is, have your sales events come from a place of abundance rather than desperation.