Discounting works. That's the problem.

Go pull two numbers from your store, gross sales and discounts, and divide your discounts by your gross sales. That ratio tells you how promotional the business is.

Under 10%, you don't have anything to do. Between 10 and 20%, you're not far off, but there's opportunity. Between 20 and 30%, you're in the danger zone. At 30% or more, you have a promotional business.

I'm not anti-promotion. I'm anti-reckless promotion. A holiday sale is fine, and there's nuance in all of this. The number matters because of what discounting does to a business over a long enough time horizon.

How the squeeze works

Discounting works. That's the problem. You want more volume, you raise the discount, and product moves. Every KPI your team carries rewards it, so it happens again.

Over time, you train your customers that discounting is part of your playbook. They might not say discounting, but they'll say: they're going to go on sale again, so maybe I'll wait.

Then the math starts moving underneath you. Say 25% off used to hit your number, but over a long enough horizon it takes 30 or 35, because people have seen you on sale before and this isn't as good a deal anymore. Your discount becomes your everyday price. Run 25% off all the time and people stop thinking of you as a $100 item and start thinking of you as a $75 item.

Revenue keeps climbing through all of this, so everybody goes, we're fine. Underneath it, though, contribution margin is shrinking, and the volume side starts slipping too. The same 25% off drives maybe 80% of the volume it used to, so ad spend rises to hold the topline, and margin gets squeezed from both ends. When things get tighter, they're exponentially tighter.

You don't necessarily notice until comps get hard, and by then you're deep in it. Whether you plan to keep the business or sell it someday, the problem is the same, and I've written about what buyers do to promo-driven revenue.

If your number came back high

Look in the mirror and ask what would happen if you cut all discounting today. Does the business survive? What would have to change for it to?

The first reaction is usually that volume would plummet, and that's real. From there you have two choices. One is keep walking the same path, and you know how that ends. It's bad. Short term feels good, longer term feels worse. The other is getting serious about what has to change.

The three big levers in these businesses are people, ad spend, and cost of goods. Your actual product costs are mostly fixed, so the closest thing you have to a cost of goods lever is what you keep per unit, and that's discounting. The adjustments that let you survive the cut have to come from the other two. For us, part of the answer was lowering our fixed costs.

We cut our discount rate from 33% to 3%, and the baseline grew.

Know your number, and be actively working on it.

Run yours and reply with where you landed. I'm curious what the spread looks like.