A discount that looks small from the customer’s perspective can have a significant impact on your profit.
Consider a business selling a product for ₦100,000 with a 20% gross profit margin.
That means the business makes ₦20,000 gross profit per sale.
Now suppose the business offers a 10% discount, reducing the selling price to ₦90,000.
If the underlying cost remains ₦80,000, the gross profit falls from ₦20,000 to ₦10,000.
The business has effectively cut its gross profit in half.
To recover the original ₦20,000 gross profit, it would now need to make twice as many sales at the discounted price.
Discounts should not be viewed simply as a way to attract customers. They are a financial decision that directly affects margins, profitability, and the number of sales required to achieve the same profit.
Before offering a discount, ask:
What will happen to my profit margin?
How many additional sales will I need?
Will the increased volume actually compensate for the lower price?
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