Discounts for Small Businesses: A Complete Beginner’s Guide

Discounts can be one of the easiest sales strategies for customers to understand—but they can also reduce profit quickly when they are used without a clear purpose.

A discount is a temporary or conditional reduction in the regular selling price of a product or service.

Small businesses can use discounts to attract new customers, encourage purchases, increase order size, support seasonal promotions, reward loyal customers, move selected inventory, and create urgency.

But the goal should not simply be:

“Lower the price and hope more people buy.”

A better approach is:

“What business goal is this discount designed to accomplish, and can we still make acceptable profit?”

SET A SALES GOAL
↓
CHOOSE THE RIGHT PRODUCT OR SERVICE
↓
UNDERSTAND YOUR COSTS
↓
CHOOSE THE DISCOUNT TYPE
↓
SET CLEAR CONDITIONS
↓
PROMOTE THE OFFER
↓
CUSTOMER DECIDES
↓
MEASURE SALES + PROFIT + CUSTOMER RESPONSE

This beginner-friendly guide explains the major types of discounts, how to calculate discounts, how to protect profit, when discounts may be useful, common mistakes, promotional ideas, and how discounts connect with other small-business sales strategies.

What Is a Discount?

A discount reduces the price a customer pays compared with the applicable regular price.

For example:

Regular price: $50

10% discount: $5

Customer pays: $45

The customer receives a price reduction, while the business accepts less revenue from that particular item in exchange for a potential sales benefit.

Why Do Small Businesses Offer Discounts?

Businesses may use discounts to:

• Attract new customers
• Encourage hesitant shoppers to purchase
• Increase order size
• Reward repeat customers
• Support holiday or seasonal campaigns
• Promote a new product
• Move selected slow-selling inventory
• Encourage larger quantities
• Re-engage previous customers
• Support special events
• Create urgency
• Increase short-term sales volume

Every discount should ideally have a reason.

The Most Important Rule of Discounting

Know your numbers before reducing your price.

A discount reduces revenue per discounted item.

Your costs do not necessarily fall simply because your selling price falls.

You may still have:

• Product costs
• Materials
• Labor
• Packaging
• Shipping expenses
• Transaction fees
• Marketplace fees
• Advertising expenses
• Returns
• Customer-service costs
• Other operating expenses

A promotion that generates many orders can still be disappointing if the economics do not work.

See P — Product Pricing.

How to Calculate a Percentage Discount

A simple formula is:

REGULAR PRICE × DISCOUNT PERCENTAGE = DISCOUNT AMOUNT

Then:

REGULAR PRICE − DISCOUNT AMOUNT = SALE PRICE

Example:

Regular price: $80

Discount: 20%

$80 × 0.20 = $16 discount

$80 − $16 = $64 sale price

Percentage Discounts

A percentage discount reduces the price by a specified percentage.

Examples:

• 10% off
• 15% off
• 20% off
• 25% off

Percentage discounts are easy to communicate and can work across products with different prices.

Dollar-Amount Discounts

A fixed-amount discount subtracts a specific dollar amount.

Examples:

• $5 off
• $10 off
• $20 off

For example:

$60 product − $10 discount = $50 sale price.

Minimum-Purchase Discounts

A business can require customers to reach a minimum order amount before receiving a discount.

For example:

Spend $75 and receive $10 off.

This strategy can encourage customers to add more items to reach the threshold.

However, the threshold should be chosen carefully so the promotion remains financially sensible.

New Customer Discounts

A first-purchase discount may encourage someone who has never purchased from the business to try it.

Examples might include:

• 10% off a first order
• $5 off a first qualifying purchase
• A special first-customer promotional code

The business should compare the cost of acquiring the customer with the value that customer may generate over time.

See N — New Customer Offers.

Repeat Customer Discounts

Discounts can also be used to recognize existing customers.

For example:

• Returning-customer coupon
• Anniversary offer
• Customer-appreciation discount
• Special loyalty promotion

Discounts are only one way to reward loyalty. Early access, exclusive products, gifts, points, services, or member benefits may sometimes provide value without reducing every selling price.

See R — Repeat Customers.

Seasonal Discounts

Seasonal promotions are tied to a season, holiday, event, or buying period.

Examples can include:

• Spring promotion
• Summer sale
• Back-to-school promotion
• Holiday sale
• End-of-season clearance

See H — Holiday Sales and Y — Year-Round Sales Strategies.

Limited-Time Discounts

A discount may be available only for a clearly defined period.

For example:

15% off through Sunday.

A genuine deadline can give customers a reason to make a decision rather than postponing the purchase.

Do not create false deadlines or repeatedly claim that an offer is ending when it is effectively permanent.

See L — Limited-Time Offers.

Clearance Discounts

Clearance pricing can help businesses sell products they no longer intend to carry or inventory they genuinely need to reduce.

Possible reasons include:

• End of season
• Discontinued products
• Old packaging
• Catalog changes
• Excess inventory
• One-of-a-kind inventory that needs to move

Clearance should still be priced with costs and business goals in mind.

Quantity Discounts

A quantity discount rewards a customer for purchasing more units.

For example:

1 item: regular price

3 items: lower price per item

5 items: another qualifying price

Quantity discounts deserve their own strategy because the business must carefully evaluate margins as order volume increases.

See Q — Quantity Discounts.

Discount Codes

Discount codes can help businesses control and track promotions.

For example:

WELCOME10

SPRING15

THANKYOU10

A code can be associated with a particular campaign, audience, channel, or promotion.

This can help the business determine where customers discovered the offer.

Automatic Discounts

Some ecommerce systems allow eligible discounts to apply automatically when specified conditions are met.

This can reduce the need for customers to remember or type a promotional code.

Whether automatic discounts are appropriate depends on the platform, promotion, and business strategy.

Discounts for Email Subscribers

A business may provide a special promotion to people who have voluntarily joined its email list.

For example:

Join our email list and receive a first-order offer.

The business should make signup terms clear and comply with applicable email-marketing and privacy requirements.

See E — Email Offers.

Discounts for Members

Membership programs may include exclusive prices or occasional member-only discounts.

However, a membership does not have to depend entirely on discounts.

Other benefits can include:

• Exclusive resources
• Early access
• Members-only products
• Special content
• Priority access
• Exclusive events

See M — Memberships.

Discounts for Jewelry Businesses

Jewelry sellers can use discounts selectively rather than placing the entire store on sale constantly.

Possible strategies include:

• Selected-item sale
• Seasonal collection sale
• Clearance of older inventory
• Returning-customer promotion
• Event-based sale
• Minimum-purchase promotion

For vintage, estate, handmade, or one-of-a-kind jewelry, consider the uniqueness of the item before deciding whether a discount is necessary.

Discounts for Handmade Businesses

Handmade businesses need to be particularly careful about labor.

The price of a handmade product may need to cover:

• Materials
• Design time
• Production labor
• Packaging
• Platform fees
• Marketing
• Overhead
• Profit

A discount that ignores labor can make a popular sale financially unattractive.

Discounts for Digital Products

Digital products do not usually have the same per-unit production costs as physical inventory, but they still have business costs.

These can include:

• Creation time
• Design
• Software
• Platform fees
• Payment processing
• Advertising
• Customer support
• Updates

Digital products can be discounted, but businesses should avoid training customers to believe there is no reason to purchase at regular price.

Discounts for Service Businesses

Service businesses should consider how much time and expertise are required to deliver the service.

For example, discounting a consultation does not reduce the amount of time the consultation requires.

Possible alternatives to a large discount include:

• Introductory package
• Smaller service option
• Added resource
• Bonus consultation time
• Package pricing

Discounts for Local Businesses

Local businesses might use:

• Opening promotions
• Local-event discounts
• Customer-appreciation offers
• Seasonal promotions
• Slow-day promotions
• Repeat-customer incentives

Track whether these offers create profitable incremental business rather than simply reducing prices for customers who would have purchased anyway.

Discounts for B2B Businesses

Business-to-business sellers may use discounts differently from consumer retailers.

Possible structures include:

• Volume pricing
• Contract pricing
• Early-payment discounts
• Annual commitment pricing
• Wholesale pricing

Each structure should be evaluated based on costs, payment terms, service requirements, and profitability.

Discounts and Average Order Value

Discounts can decrease the selling price of individual products, but certain discount structures may encourage larger orders.

For example:

Spend $100 and receive $15 off.

A customer planning to spend $80 may add another item to qualify.

But the business must compare the higher order amount with the cost of the discount.

Calculate Average Order Value

A simplified formula is:

TOTAL ORDER REVENUE
÷
NUMBER OF ORDERS
=
AVERAGE ORDER VALUE

Track AOV before, during, and after major promotions when useful.

Discounts and Profit Margin

One of the most common mistakes is assuming that a 20% discount simply means giving up 20% of profit.

That is not necessarily true.

Revenue and profit are different.

Suppose a product sells for $50 and has $30 of relevant direct costs.

Before the discount:

$50 − $30 = $20

After a 20% discount:

$50 × 20% = $10 discount

$40 sale price − $30 costs = $10

In this simplified example, the selling price decreased by 20%, but gross profit dollars fell from $20 to $10—a 50% reduction.

This is why discount decisions should be based on your actual numbers.

How Much More Must You Sell After Discounting?

If profit per sale decreases, a business may need more sales to generate the same total gross profit dollars.

Using the simplified example above:

Regular sale gross profit: $20

Discounted sale gross profit: $10

The business would need two discounted sales to generate the same $20 of gross profit dollars as one regular-price sale, assuming the same direct costs and no additional expenses.

That does not automatically make the promotion bad—but it shows why volume matters.

Do Not Choose a Discount Percentage Randomly

Do not automatically assume:

“20% sounds good.”

Instead ask:

• What is the goal?
• What is the regular price?
• What are the relevant costs?
• What profit remains?
• How many additional sales might be needed?
• Will advertising costs increase?
• Will shipping costs change?
• Could customers have purchased without the discount?

Choose a Clear Goal Before Creating the Discount

Possible goals include:

• Acquire first-time customers
• Increase average order value
• Move discontinued inventory
• Generate seasonal sales
• Encourage repeat purchases
• Re-engage inactive customers
• Introduce a new product
• Increase quantity purchased

Different goals may require different promotions.

Discounts Should Have Clear Conditions

Customers should understand:

• What is discounted
• How much the discount is
• Who qualifies, if relevant
• Whether a minimum purchase is required
• When the promotion begins
• When it ends
• Whether exclusions apply
• Whether a code is required
• Whether it can be combined with other promotions

Clear terms reduce confusion and customer-service problems.

Use Genuine Reference Prices

If you advertise a comparison between a regular price and a sale price, the comparison should be truthful and consistent with applicable pricing and advertising requirements.

A business should not artificially inflate a reference price merely to make a discount appear larger.

Avoid Permanent “Sales” That Are Not Really Sales

If an item is advertised as discounted almost continuously, customers may begin to view the sale price as the real price.

This can weaken:

• Price credibility
• Urgency
• Perceived value
• Customer trust

Discounts Can Train Customers to Wait

If a business runs predictable deep discounts constantly, some customers may postpone purchases until the next sale.

Instead of asking:

“How often can we discount?”

also ask:

“How do we give customers reasons to purchase at regular price?”

Alternatives to Discounting

A price reduction is not the only way to create value.

Alternatives can include:

• Free shipping when financially appropriate
• Relevant add-ons
• Bundles
• Bonus products
• Gift packaging
• Exclusive access
• Membership benefits
• Better service
• Personalization
• Educational resources
• Convenience
• Guarantees or appropriate risk-reduction measures

See A — Add-Ons, B — Bundles, F — Free Shipping, M — Memberships, and Z — Zero-Risk Offers.

Discounts vs. Add-Ons

A discount lowers the selling price.

An add-on offers an optional complementary extra.

Example:

Discount: Necklace reduced from $40 to $36.

Add-on: Necklace at $40 with an optional gift box.

Discounts vs. Bundles

A discount reduces price.

A bundle packages related products or services together.

A bundle may include a discount, but it does not have to.

Its value may come from convenience, curation, exclusivity, or a complete solution.

See B — Bundles.

Discounts vs. Free Shipping

A discount reduces the product or order price.

Free shipping removes or absorbs a delivery charge for qualifying purchases.

Customers may respond differently to each offer.

Businesses should compare the financial impact of both.

See F — Free Shipping.

Discounts vs. Quantity Discounts

A general discount reduces price according to the promotion's terms.

A quantity discount specifically rewards customers for purchasing a defined quantity or volume.

See Q — Quantity Discounts.

Discounts vs. Limited-Time Offers

A discount describes the price reduction.

A limited-time offer describes the time restriction.

A promotion can be both.

For example:

20% off selected products through Sunday.

See L — Limited-Time Offers.

Discounts and Value-Based Selling

If customers understand why a product is valuable, the business may not need to rely as heavily on discounts.

Value can come from:

• Quality
• Design
• Convenience
• Expertise
• Service
• Uniqueness
• Time saved
• Problem solved
• Experience

See V — Value-Based Selling.

Discounts and Testimonials & Reviews

Customer reviews and testimonials can reduce uncertainty by helping potential customers understand other customers' experiences.

That can strengthen the offer without relying entirely on price reductions.

See T — Testimonials & Reviews.

Discounts and Email Offers

Email can help distribute discounts to specific audiences, such as:

• New subscribers
• Existing customers
• Members
• Customers interested in a product category
• Inactive customers

Where appropriate, segmentation can help avoid giving every promotion to every subscriber.

See E — Email Offers.

Promote Discounts Clearly

A discount promotion should quickly answer:

WHAT IS THE OFFER?

WHAT PRODUCTS QUALIFY?

HOW DOES THE CUSTOMER RECEIVE IT?

WHEN DOES IT END?

ARE THERE IMPORTANT CONDITIONS?

Where Can Small Businesses Promote Discounts?

Depending on the business, promotions might appear through:

• Website banners
• Product pages
• Email
• Social media
• In-store signs
• Checkout messaging
• SMS where customers have appropriately opted in
• Customer accounts
• Membership areas
• Printed materials

Do Not Hide Important Conditions

If the discount requires:

• A minimum order
• Specific products
• A promotional code
• A particular customer group
• A defined purchase period

make those conditions reasonably clear.

How to Measure a Discount Promotion

Useful measurements can include:

• Orders
• Units sold
• Revenue
• Gross profit
• Average order value
• Conversion rate
• Discount amount given
• New customers acquired
• Repeat customers
• Customer acquisition cost
• Return rate
• Refund rate
• Code usage
• Sales by channel

Discount Redemption Rate

When a discount is distributed through a measurable coupon or code, one possible calculation is:

NUMBER OF DISCOUNT REDEMPTIONS
÷
NUMBER OF ELIGIBLE / DISTRIBUTED OFFERS
× 100
=
DISCOUNT REDEMPTION RATE

The appropriate denominator depends on how the promotion was distributed and measured.

Compare Discounted Sales With Regular Sales

Do not judge a promotion only by saying:

“We sold more products.”

Compare:

• Revenue
• Profit
• Average order value
• Conversion
• Customer acquisition
• Repeat purchases
• Returns
• Advertising expenses

Ask Whether the Discount Created Incremental Sales

An important question is:

Did the promotion generate purchases that probably would not have occurred otherwise?

If most discounted customers would have purchased at regular price anyway, the promotion may simply have reduced revenue.

This can be difficult to know perfectly, but comparing similar periods, customer groups, and promotion results can provide useful information.

Test Discounts Instead of Assuming

A business might test:

• 10% off vs. $10 off where financially comparable
• Minimum-purchase discount vs. general discount
• Discount vs. free shipping
• Discount vs. bonus item
• Short promotion vs. longer promotion
• Selected products vs. broader sale

Keep profitability and customer experience at the center of the test.

Common Discounting Mistakes

• Discounting without a goal
• Choosing percentages randomly
• Ignoring product costs
• Ignoring labor
• Ignoring shipping costs
• Ignoring marketplace and transaction fees
• Measuring revenue but not profit
• Discounting too frequently
• Training customers to wait for sales
• Running fake or misleading countdowns
• Using misleading reference prices
• Making promotion terms confusing
• Hiding exclusions
• Discounting products that are already selling well without a reason
• Running storewide sales when selected products would accomplish the goal
• Using deep discounts to solve every sales problem
• Failing to track discount codes
• Ignoring returns and refunds
• Not reviewing results after the promotion

A Simple Discount Strategy for Beginners

Start small.

Do not immediately put the entire store on a deep sale.

CHOOSE ONE BUSINESS GOAL
↓
SELECT THE PRODUCT / CATEGORY / CUSTOMER GROUP
↓
CALCULATE COSTS
↓
CHOOSE A SUSTAINABLE DISCOUNT
↓
SET CLEAR TERMS
↓
SET A GENUINE TIME PERIOD IF APPLICABLE
↓
PROMOTE THE OFFER
↓
TRACK RESULTS
↓
COMPARE REVENUE + PROFIT + CUSTOMER RESPONSE
↓
DECIDE WHETHER TO REPEAT, CHANGE OR STOP

Discount Planning Worksheet

Before launching a discount, answer:

1. What is the goal of this promotion?
2. Which products or services are included?
3. Which customers qualify?
4. What is the regular selling price?
5. What are the relevant costs?
6. What discount am I considering?
7. What will the sale price be?
8. What gross profit remains?
9. Will shipping affect profitability?
10. Will advertising costs increase?
11. Is a minimum purchase needed?
12. When does the promotion start?
13. When does it end?
14. Are any products excluded?
15. Can the promotion be combined with other offers?
16. How will customers learn about it?
17. How will I track it?
18. What result would make the promotion worthwhile?

Discount Checklist

• Define the goal.
• Know your customer.
• Know the regular price.
• Calculate relevant costs.
• Understand current profitability.
• Choose the discount structure.
• Calculate the sale price.
• Estimate remaining profit.
• Consider shipping.
• Consider fees.
• Choose eligible products.
• Set minimum purchase if appropriate.
• Set genuine start and end dates where applicable.
• Create clear terms.
• Use truthful price comparisons.
• Create a promotional code if useful.
• Choose marketing channels.
• Track orders.
• Track revenue.
• Track profit.
• Track average order value.
• Track conversion.
• Track new customers.
• Track repeat purchases.
• Track returns and refunds.
• Compare results with regular-price periods where useful.
• Review the promotion.
• Repeat only if it supports your business goals.

Frequently Asked Questions About Discounts

What is a discount?

A discount is a reduction from the applicable regular selling price of a product or service.

Why do small businesses offer discounts?

Businesses may use discounts to attract customers, increase order size, reward existing customers, support seasonal promotions, introduce products, or move selected inventory.

How do I calculate a percentage discount?

Multiply the regular price by the discount percentage to calculate the discount amount, then subtract that amount from the regular price.

What is 20% off $50?

Twenty percent of $50 is $10, making the discounted price $40.

How much should a small business discount?

There is no universal percentage. The appropriate discount depends on the product's price, costs, margins, business goal, customer behavior, and promotion structure.

Is 10% off enough?

It depends on the offer, product, customer, competition, and goal. Businesses should test offers rather than assuming a specific percentage will always work.

Should I offer 20% off?

First calculate how a 20% price reduction affects your gross profit and whether the expected sales increase could justify it.

Do discounts increase sales?

Discounts can encourage purchases, but results vary. A promotion should be evaluated using revenue, profit, conversion, customer acquisition, and other relevant metrics.

Can discounts reduce profit?

Yes. Discounts reduce revenue per discounted item, so they can significantly reduce profit if additional sales do not compensate for the lower contribution per sale.

Can I offer a discount to new customers?

Yes. First-purchase discounts are common, but businesses should evaluate customer-acquisition costs and whether those customers later purchase again.

Should I discount my whole store?

Not necessarily. A targeted discount on selected products, categories, customer groups, or order thresholds may accomplish the objective with less impact on margins.

Should handmade products be discounted?

They can be, but handmade businesses should account carefully for materials, labor, fees, packaging, overhead, and desired profit.

Can digital products be discounted?

Yes, but digital businesses should still consider creation costs, platform expenses, marketing, support, and the effect frequent discounts may have on perceived value.

What is a minimum-purchase discount?

It is a discount that becomes available only after a customer reaches a specified spending threshold.

What is the difference between a discount and a quantity discount?

A general discount reduces the price according to promotional terms. A quantity discount specifically provides pricing benefits based on the amount purchased.

What is the difference between a discount and a bundle?

A discount lowers price, while a bundle combines multiple related products or services into one offer. A bundle can be discounted, but it does not have to be.

What is the difference between a discount and free shipping?

A discount reduces the price of a product or order, while free shipping removes or absorbs a delivery charge for qualifying purchases.

What is the difference between a discount and a limited-time offer?

A discount refers to a price reduction. A limited-time offer refers to an offer available for a defined period. A promotion can be both.

Can too many discounts hurt a business?

Frequent discounting can reduce margins, weaken price credibility, and encourage customers to wait for future sales.

What can I offer instead of a discount?

Alternatives include bundles, useful bonuses, add-ons, free shipping when financially appropriate, exclusive access, membership benefits, better service, personalization, and other forms of added value.

How do I know whether a discount worked?

Review sales volume, revenue, gross profit, average order value, conversion, new-customer acquisition, repeat purchases, returns, refunds, and the total cost of the promotion.

The Most Important Discounting Lesson

A discount is a tool—not a complete sales strategy.

Lowering prices can generate attention and encourage purchases, but every price reduction has a financial effect.

The central question should be:

“What specific business objective will this discount accomplish, and does the promotion still make financial sense?”

KNOW YOUR CUSTOMER
↓
DEFINE THE SALES GOAL
↓
KNOW YOUR COSTS
↓
CHOOSE THE RIGHT DISCOUNT
↓
CALCULATE THE SALE PRICE
↓
PROTECT PROFITABILITY
↓
SET CLEAR & HONEST TERMS
↓
PROMOTE THE OFFER
↓
CUSTOMER PURCHASES
↓
MEASURE SALES + PROFIT + CUSTOMER RESPONSE
↓
LEARN & IMPROVE

The best discount is not necessarily the biggest discount. It is the discount that supports a clear business goal while still making sense for the customer and the business.