Discounts aren't a growth strategy

It seems like recently most growth strategy I hear about hinges on discounting.

When every brand in the room is relying on the same thing to grow, that's usually a pretty good reason not to rely on it yourself.

How the habit forms

Discounting feels like it's working, for a while.

You run a promo. Revenue spikes. You run another one. Revenue spikes again. You comp last year, you comp the year before, the dashboard looks great, the team feels like they're winning.

This can work for a few years, especially if you're launching new products at a decent clip. New SKUs give you new reasons to promote and the mix stays fresh enough that the discounting doesn't feel stale.

Then momentum slows, for any number of reasons. Maybe you stop launching new products at the same rate, the category cools, or the economy gets weird. At that point you have two choices.

Spend more on ads to drive the same volume at the same discount rate.

Or discount deeper to drive the same volume at the same ad spend.

Both kill contribution margin. The longer you've been doing it, the harder it gets to stop, because your team, your customers, and your retailers all expect the next offer on the calendar. Plus, your fixed expenses mean you can't do what's healthier for the business.

Quality of revenue is a metric you should track

Revenue that needed a discount isn't the same as revenue that didn't. Founders and teams rarely look at this, but it's one of the most important health signals in a consumer business.

When you run your comps, strip out the promotional days. A few years ago we had a leap year sale and that day looked enormous. It's not repeatable though, and the number said nothing about whether the business was getting healthier.

Two different things you can do to look at this:

• What percent of overall revenue is driven during a promotional period?
• What is your net sales / gross sales ratio?

The objection, and the honest answer

There's a million reasons why you "can't" stop discounting…

My answer to that sounds trite, but I think it's the real one: you're not trying hard enough.

If 20 percent off is the only thing moving your product, discounting isn't fixing anything. The actual issue is price, positioning, or the product itself.

There are two better paths. Make the full-price offer work, which means better messaging, better sales language, better on-site experience, and sharper creative. It's slower and it's harder.

Or lower MSRP to a price point the market actually supports.

The hard part is doing it

This is scary. Anyone who tells you they cut discounting overnight and things were immediately better is lying.

There's ego in it. People's jobs. The fear that you kill the quarter and anxiety over reporting results to the board. Most of us know inherently that we should discount less. Actually committing to do it is a different thing.

Business is fairly simple most of the time. It's just hard.

Your growth rate might slow, especially if you're in a category that isn't growing organically. Your quality of revenue will go up, though. Better margin, better staying power, better valuations (over the long haul), better optionality. That's the trade.

Would love to hear the disagreements. If you've cut discounting and seen a different outcome, or you think the trade isn't worth it, tell me why.

P.S. Thirty-minute exercise.

Pull your P&L for the last 90 days. You need these numbers:

• Gross revenue
• Net revenue (after discounts)
• Realized discount rate
• Gross margin percent
• Units sold
• Total ad spend
• OPEX
• Net profit

Now run two scenarios side by side.

Scenario A (Business as usual): Current discount rate, current run rate, current team focus. Project the next 90 days on your current trajectory.

Scenario B (The reset): Cut your realized discount rate to 5 percent. Redirect the team's promo-planning hours into conversion work: sharper messaging, tighter product pages, better offer architecture. Assume volume drops somewhere between 10 and 25 percent because there are fewer promos, but conversion improves 10 to 15 percent from the new focus.

Compare profit after ads between the two.

Your gross margin, contribution margin, and net profit should all improve, assuming OPEX doesn't penalize you. Gross margin goes up because you're collecting more per sale. Contribution margin goes up because each unit is worth more, which stretches your ad spend further. Net profit follows from the other two.

If overhead is bloated, the reset still works. It just takes longer to land in net profit.