By Mar 18, 2024 06:44:12 1 hour ago read
Discounts are a great way to turn heads toward your business, as customers love them. In fact, a whopping 95% of shoppers utilize a discount or coupon throughout the year. Among the various types of discounts available, percentage-based discount is a popular choice. Even 95% of US online shoppers actively use percentage off coupons when making a purchase. Offering percentage-based discounts benefits your business by attracting new customers, boosting sales, and building brand loyalty.
This article further guides you about percentage-based discounts, how to calculate them, and the best strategies to follow to offer a percent off. So, let's begin!
Percentage-based discount is a unique pricing strategy in which a specific percentage or amount is reduced from the original price of a product or service. It's expressed in percentages that can be any number, like 15% off or 50% off.
For instance, if you see a shirt at 50% off, you should know that the original price of the item is reduced by 50%. The purpose of offering a percentage off is to enable customers to save money on their purchases and earn their loyalty.
Calculating a percentage-based discount is quite easy if you follow the step-by-step formula, which is given below:
Step 1: Convert the Percentage to Decimal Point = Discount Percentage/100
For example, if the discount on your favorite shirt is 25%, then:
Decimal = 25/100 = 0.25
Step 2: Multiply the Original Price by the Decimal to Get the Discount price = Decimal Value × Original Price
If the original price is $100, then:
Discount Price = 0.25 × $100 = $25
Step 3: Subtract the Discounted Price from the Original Price to Know the Sale Price = Discount Price - Original Price
Using the original price of $100 and discount price of $25, then:
Sale Price = $100 - $25 = $75
So, the sale price on the shirt that's available for a 25% percentage-based discount is $75.
Let's discuss another example to understand the calculation of percentage-based discount better:
Fashion Forward has decided to do a season-end sale for its customers on winter jackets. The original price of the jacket is $150, and the store would like to present a discount of 30%.
Here's how they calculate the discount or sale price:
As a business owner, you may wonder whether a fixed dollar amount discount is better or if you should opt for a percentage-based discount. To take you out of this worry, we are going to discuss both in detail, along with their key differences.
Let's first discuss percentage-based discounts:
The best part about percentage-based discounts is that they proportionally scale with the product price. This means that as the product's price goes up, the sale price also goes up. For instance, a 15% discount on a $100 t-shirt offers customers a savings of $15, while the same 15% on a $200 t-shirt allows customers to save $30.
Percentage-based discounts are also more suitable for low-priced items. For instance, a 30% discount on a $10 item yields a saving of $3, which is more exciting for customers than a fixed dollar amount.
Percentage discounts are also effective in encouraging bulk purchases. It's because the discount amount is applied to each item and overall savings increase with the quantity of products purchased. This makes customers happy and allows businesses to move excess inventory, a win-win situation for both businesses and consumers.
Here's an overview of dollar-off discounts:
Dollar-based discounts provide greater transparency as the discount amount is clearly mentioned. This saves customers from the hassle of calculating percentages and getting an idea of the sale price. For example, a $20 discount on a laptop clearly indicates that customers will save $20 from the original product price.
These discounts are perfect for high-priced items where savings are substantial in dollars. For instance, mentioning a $100 discount on a $1000 electronic gadget seems like a better deal than mentioning 10% off. This is your chance to attract customers who are looking for significant savings on their purchases.
Unlike percentage-based discounts that scale with the product price, dollar-off discounts offer a fixed discount value regardless of the product's price. This means if the discounted amount is $50 for a $100 item, it'll stay at $50 even if the product price increases to $200.
Now, let's discuss some benefits of percentage-based discounts:
Percentage discounts are a great way to increase sales. They incentivize customers by offering a reduction in the original price of the product. This can appeal to price-conscious consumers who are reluctant to purchase their favorite product at full price and are looking for a better deal. The discounted price creates urgency, prompting customers to make a purchase and increasing your overall sales and cash flow.
If you have low-demand items stocked in your inventory, you can put a percentage-based discount on them. The discount allows you to attract customers who were previously interested in this product, but pricing was a barrier.
This demand stimulation improves inventory turnover. Shelf space is free for more popular items, and the business is at a lower risk of inventory obsolescence.
People are always on the lookout for the best deal, so to attract new customers to your brand, you should offer percentage discounts. For instance, you can offer new customers 10% off when they sign up for your newsletter or fill out the information form.
This initial incentive to try your brand at a discounted price gives customers a chance to experience the quality of your product. If you tick all the boxes, it can lay the foundation for earning loyal and returning customers.
Now that you know the benefits of a percentage-based discount, you must be wondering about the various strategies to offer this discount to maximize sales and profitability. Here are some:
Your existing customers are definitely your most valuable assets. So, what better way to utilize percentage discounts than to offer them to your existing customers who can bring you new business? Cutting it short, provide your existing customers with a discount of 10% or 20% on your products for every new customer they bring to your business.
Offering discounts to referrals is a great word-of-mouth marketing idea that's highly effective and cost-efficient. You not only earn the loyalty of existing customers but also leverage their network to expand your customer base.
Another option is to offer percentage-based discounts to customers who opt for early payment or prepayment. This is especially useful if you are running a subscription-based business.
You can give a discounted rate to customers who subscribe to yearly service instead of monthly. This paves the way for cost savings and convenience for the customers. For businesses, it results in cash flow and reduced account receivables.
Customer feedback is very important, and you can use the percentage discount to get feedback from your customers. For instance, you can give a discount of 30% on the next purchase for customers who share insights into how your products helped them.
This feedback builds your credibility, which is essential for attracting new customers. In addition, it allows your business to refine the products as per customers' remarks to meet and exceed their expectations.
A 25% discount on a $100 bag means you can get it for $75, saving $25. This discount reduces the bag's price by a quarter, resulting in significant cost savings for customers.
Usually, the effectiveness of a percentage discount depends upon the type of business you are running. However, a 50% discount or above is a good deal as it attracts customers and increases your sales.
Customers can do a few things to prevent falling victim to fake percentage discounts. First, use the discount percentage formula to find the exact sale price, and don't be trapped by sale banners stating 99% sale. Also, check other marketplaces; if the sale price is higher than similar products elsewhere, it's probably a fake discount.
Percentage-based discounts are a great way to attract new customers and increase the satisfaction level of existing ones. The various strategies your business can adopt to give discounts to its customers vary from referrals to early payment and getting customer feedback.
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