Getting In Deep With Discounts
September, 1993

One of the most "important" columns I have ever written.

I quote from it a lot to other retailers.

If YOUR store offers a discount, take a close look at that math and tell me if it REALLY makes sense.

Deep discounting never made any sense to me.

When I was recently in Kansas City visiting a relative, I went into a local store to buy my cousin a copy of the latest Sandman. I was given a 10% discount. I asked why, and the store replied that every customer gets a 10% discount, and that regulars do even better. Evidently this is a citywide phenomena.

I understand in Detroit, discounting starts at 20%.

I just don't get it.

Why would anyone give away money, just because a customer happens to walk in your store once? I can understand giving a discount for someone who earns it, but to any Tom, Dick or Harry? No way, Jose!

At Comix Experience, we give a straight 10% discount to any member of our subscription service. Unlike most stores' pull-and-hold services, we put out a new form monthly, so we're able to get (nearly) instant information about our customers likes and dislikes. So it's worth giving away that discount in the face of the information I take in.

But I'll talk about pull-and-hold systems another day -- today the topic is discounting.

Are you aware just how much discounting can cost you? I've prepared the charts below to illuminate my point. First find the chart that corresponds to your discount level (though even stores that get 55% off still have some titles they only make 40% on). I've made 4 charts, for 55%, 50%, 45%, and 40% discount levels. If you're one of the rarer "odd discount" retailers, I apologize, but hopefully you'll be able to create an appropriate chart with the info I've given here.

Each chart compares 6 different customer discount levels (none, 10%, 15%, 20%, 25%, and 30%). First you'll see the retail amount a $1.25 comic book sells for at that discount, then the profit from that sale. When you give discounts, your costs remain the same! Then the chart show how many copies you'd need to sell to make $20 profit. Finally the chart shows how many more comics you need to sell to make the same amount of profit. (All numbers are rounded to the next whole number)

Look at the charts, and then we'll talk some more.

Chart #1: $1.25 comic at 55% off

Cost is $.56

Discount Given

None 10% 15% 20% 25% 30%

Retail $1.25 $1.13 $1.06 $1.00 $.94 $.88

Profit $.69 $.56 $.50 $.44 $.38 $.31

Number of copies sold to make $20 profit 29 36 40 46 53 64

% difference from NO discount: 22% 38% 57% 83% 120%

Chart #2: $1.25 comic at 50% off

Cost is $.63

Discount Given

None 10% 15% 20% 25% 30%

Retail $1.25 $1.13 $1.06 $1.00 $.94 $.88

Profit $.63 $.50 $.44 $.38 $.31 $.25

Number of copies sold to make $20 profit 32 40 46 53 64 80

% difference from NO discount: 25% 43% 67% 100% 150%

Chart #3: $1.25 comic at 45% off

Cost is $.69

Discount Given

None 10% 15% 20% 25% 30%

Retail $1.25 $1.13 $1.06 $1.00 $.94 $.88

Profit $.56 $.44 $.38 $.31 $.25 $.19

Number of copies sold to make $20 profit 36 46 53 64 80 107

% difference from NO discount: 29% 50% 80% 125% 200%

Chart #4: $1.25 comic at 40% off

Cost is $.75

Discount Given

None 10% 15% 20% 25% 30%

Retail $1.25 $1.13 $1.06 $1.00 $.94 $.88

Profit $.50 $.38 $.31 $.25 $.19 $.13

Number of copies sold to make $20 profit 40 53 64 80 107 160

% difference from NO discount: 33% 60% 100% 167% 300%

As you can see, discounting eats into your bottom line dramatically! Let's take a couple of for examples.

Example #1: You're a 50% discount store that gives a uniform 20% discount to all customers (a typical Detroit scenario) – you've got to sell 67% more comics to make the exact same amount of money if you didn't discount. To put it another way, if you immediately cut the discount, and lost about 40% of your customers, your profit would remain the same! You currently have to sell 53 comics at 20% off to equal the same profit you'd see from selling 32 comics at full retail.

Example #2: you're a small store that gets a 40% discount. You give your customers 10% off. You've got to sell 13 more comics to make the same amount if you gave no discount – that's a third! You could lose 25% of your customers, eliminate the discount, and still make the same amount of profit!

Example #3: You're Bob's Mega-comics, and you get 55% off. You give a 30% discount. You've got to sell more than twice as many comics to make the same profit as you would with no discount. You could lose more than half your customers, and still be just as profitable.

Of course, losing volume could affect your discount from your distributor, so it's not like I'm saying to automatically dump the discount. And, of course, all numbers assume that you've got 100% sell-through (an unlikely event across the board) – the poorer your sell-through, the more you've got to sell to make up for it.

I believe that discounting has its place. When someone performs a service for you (like the collection of information from my customers; or the courtesy discount I give to professionals – who supply the material I sell in my shop; or even to other merchants who give you discounts on services for the store), it makes sense to "reward" him or her with a discount. But I think it's inane to "give away the store" to any Joe off the street that hasn't even provided customer loyalty to you.

Use the charts to see what you're losing. Then make the appropriate decision, based on your store and clientele. But without the basic information, how will you ever know?