Chapter 14
IN THIS CHAPTER
Pricing your products appropriately
Identifying when the time is right for a sale
Creating a reduced sale price
Offering discounts and free shipping
Saving time by taking some discounting shortcuts
Your pricing is crucial to the success of your online business, and depending on your strategy, attractive pricing could be your point of difference; alternatively, you could be selling at a higher premium, and offering a higher quality product or a superior service. Some businesses use discounts to attract new customers or retain customers who haven’t shopped in a while. However you approach it, discounting should be used strategically rather than you handing out price reductions to customers here, there and everywhere.
In this chapter, I show you how to price your products and run sales and promotions. I also show you how to create discount codes that offer a certain percentage or dollar discount, and how to create offers that provide free shipping or allow customers to buy one get one free.
Pricing isn’t a ‘feel’ thing; it’s more science than art. When you price your product, you need to ensure two things:
While I recommend aiming for a 70 per cent profit margin on the product’s cost price, I try and run my businesses by the 50/30/20 rule — aim for a 50 per cent gross profit margin, where 30 per cent covers operating expenses, leaving a 20 per cent net profit margin.
Johnny launches his website, but no sales come in. He picks up this book, flips to chapters 15, 16 and 17 to review marketing techniques, and realises he’s going to need to spend about 15 per cent of his projected revenue on marketing, or what’s known as a CPO (cost per order) of 15 per cent. In other words, he will need to spend 15 per cent of the sale price of $25 to get that sale. Johnny is then left with 25 per cent profit — so he doesn’t cancel the lease on his new BMW yet.
Johnny makes a few sales and posts them, only to realise he needs to allow 8 per cent for shipping, so he’s left with 17 per cent. Johnny’s bank wants 3 per cent of that sale for merchant fees, so he’s left with 14 per cent profit. Johnny dreams of having an online business with 50 staff, so he realises he’s got to budget at least around 8 per cent for wages, including his own, which means he’s down to 6 per cent. Johnny’s wife is a little sick of the sight of dog beds piling up in the unit, so he’s got to get a storage space — there goes another 5 per cent, and suddenly Johnny is down to 1 per cent. Now Johnny’s cancelled the seafood dinner, and he’s navigating the drive-through at McDonald’s.
Poor old Johnny has 1 per cent of that $25 sale left, and I haven’t even listed half of the expenses of a typical ecommerce business. Every business is different, but you can use common benchmarks when budgeting for your online store. If you don’t know your expected net profit, let alone your gross profit, it’s time to take a step back before you get started.
So, how do you price your goods to allow for all those expenses?
In other words, if you are creating a new brand or a new product, you should target a 70 per cent profit margin on your products when you set your retail price, so your landed cost price should be 30 per cent of your retail price. This gives you enough of a buffer to allow for fixed expenses so you don’t end up like Johnny.
If you’re a business to consumer (B2C) seller, the profit margin on your products is typically smaller, as you’re likely to be the person in between the customer and the manufacturer. A B2C profit margin could be as low as 45 per cent but you would not want to see it any lower than that, and you are likely to have less control over the retail price as the manufacturer may not like seeing you heavily discount a product. Equally, if you over-price the product the customer may look elsewhere if you’re stocking a well-known brand. (I explain the differences between D2C and B2C sellers in Chapter 3.)
In other words, your landed cost divided by 0.3 equals your retail price, not including tax. Add your country’s tax — for example, 10 per cent — and round your pricing to a round number (for example, $110 including tax).
To test the margin, you can reverse the equation as follows:
If you take your retail price less tax, deduct your landed cost price, and then divide that total by your retail price, you are left with your profit margin.
The number that comes out is your product’s profit margin, which is hopefully above 70 per cent! Anything below 70 per cent means you are at risk of not being able to spend healthily on marketing, wages and the other things you’ll need as you grow. A bigger business with a margin of 70 per cent, selling in-demand products, should end up with a net profit margin of greater than 20 per cent — even as high as 40 per cent if it really catches fire.
Your net profit margin could be much higher in your early days if you take this approach to pricing as your expenses generally start lower — for example, if it’s just you and a couple of helpers in the business, or you are running it from home and not paying rent. However, if you really want to accelerate your sales and increase the sum of your net profits, you will need to spend more money, which will decrease your profit margin but put more money in your pocket — a smaller slice of a bigger pie! Pricing for a healthy profit margin sets you up to scale your business.
So, when to go on sale? It’s a question I’ve been asked by retailers who are turning over tens of millions of dollars, as well as those just starting out. There’s no one-size-fits-all approach to discounting and promotions — although I do look at tactical promotions to win back lost or at-risk customers, as well as to acquire new customers, when I look at marketing techniques in chapters 15, 16 and 17.
Most online retailers go on sale at least once or twice throughout the year. It’s probably a customer expectation that around the Black Friday/Cyber Monday period just after Thanksgiving in the United States, most online retailers will be on sale, as well as on Boxing Day and around the end of the financial year (which varies by country).
Sales and promotional periods begin sooner than you might think. For example, Christmas occurs on 25 December every year; however, look at Figure 14-1, which depicts Google’s search volume in the United States for the search term ‘Christmas Gift Ideas’ — it starts trending up at the end of August!
The following is a list of key promotional periods where online stores typically run sales and promotions:
In Chapter 5, I looked at how to enter a price into your products as you add them to your Shopify store. In this chapter, I’m going to show you how to mark down your price when you want to put your products on sale. In Shopify, this is called the Compare At price.
When you set a Compare At price, the product listing updates on your online store to show that the item is on sale. The way that a sale price is shown depends on the theme that you’re using; for example, you might see a Sale label on the product image, or you might see nothing at all in the product image, and just see the original price, crossed out, with the new sale (or Compare At) price in red text next to it.
Typically, the way that sale prices are shown depends on whether:
For a product with variants whose prices are not identical, the lowest sale price is indicated at the collection level. So, the variant with the cheapest price is what will appear in that product when the customer is browsing through your collections. As a customer changes sizes or variants while on the product page, the displayed price changes accordingly.
For a single-variant product, or a product whose variant prices are all identical, the original and sale prices are shown as a comparison when a customer is browsing your collections, usually with the original price crossed out and the sale price next to it (the appearance of this depends on your theme — Chapter 4 covers choosing a theme for your online store).
Here’s how to set a Compare At (or sale) price for a product:
From your Shopify admin, go to Products → All Products.
A list of all your store’s products appears.
Click on the name of the product you want to put on sale.
The product’s page appears.
In the Pricing section, set the Compare At Price to be the same as the product’s original price (see Figure 14-2).
For example, in Figure 14-2 you would add 299.00 to the Compare At Price field.
In the Price field, change the price to reflect the sale price you want to sell the product at in your sale.
For example, you might reduce the sale price of the product in Figure 14-2 from 299.00 to 150.00.
For another example, if a pair of jeans retails for $100 but you want to put them on sale for $80, you delete $100 from the Price field and enter it into the Compare At Price field, and then you enter $80 into the Price field and click on Save.
Here’s how to set a Compare At (or sale) price for a variant within a product:
From your Shopify admin, go to Products → All Products.
A list of all your store’s products appears.
Click on the name of the product you want to put on sale.
The product’s page appears.
Many online retailers view discounting as a necessary evil, although some hang their hats on it and make it a part of their core offering. The online retailer that discounts because everyone else is doing it is a lazy online retailer. It’s also not true that you can simply emulate what everyone else is doing because every business has its own strategy. I work with businesses who discount their products 365 days of the year because it’s a part of their strategy, and I also work with retailers who only go on sale twice a year. The upside for the high-discounting business is that conversion rates are very high; the downside is that gross margins are very low, meaning there is less money to spend on things like marketing and wages.
The challenge is to price your products optimally, ensuring you’re leaving enough wiggle room for running your business and taking a wage. Discounting can eat into that if you’re not careful.
So, when to discount? The answer is to discount when your business can afford to do it as a means to increase profits, not just sales, and when it doesn’t have a negative impact on your brand. What is the point of driving heavy sales — putting a strain on your fulfillment and incurring high shipping costs with your increased volumes — if you haven’t actually increased your net profit?
Earlier in this chapter (in the section ‘Setting Sale Prices for Products: The ‘Compare At’ Price’), I looked at marking down the price of individual products. In the following sections, I’m going to show you how you can offer your customers a fixed amount, percentage or shipping discount on products, collections or variants. You can also offer more creative offers, such as ‘buy X get Y’ discounts to encourage customers to buy more items or spend more than they typically would (because they are rewarded with a discount for doing so).
You can specify the following rules for discount codes in Shopify:
Some things to consider before creating a discount code
Usability: Make the code easy to use — remember, to provide a good user experience, you always want to reduce friction between the customer and the website.
Avoid using special characters in the name of the discount code, such as &, * and %. Keep it simple as you don’t want customers to abandon the checkout because they can’t enter the code correctly.
You can create four kinds of discounts with a discount code in Shopify, and three when you elect to create an automatic discount that is auto-applied at checkout:
To create a percentage or fixed amount discount code, follow these steps:
From your Shopify admin, go to Discounts, which is in your main menu on the left-hand side.
The Discounts page appears.
Click on Create Discount — the green button in the top-right corner.
The Create Discount dialogue box appears (see Figure 14-3). You’re presented with two options: Discount Code and Automatic Discount.
Clicking on the Discount Code option requires the customer to physically enter a discount code into your store’s checkout to get the discount, whereas Automatic Discount is applied automatically in the checkout, so the customer doesn’t need to enter anything.
Select Discount Code or Automatic Discount.
The Create Discount Code section appears.
In the Discount Code option, you’re prompted to create a discount code at the top of the page, such as VIP20, which customers can enter into the discount code box in your checkout (see Figure 14-4).
If you select Automatic Discount, you’re asked to enter a name (‘Title’) for your discount, where it is a good idea to describe the discount on offer — for example, if you use VIP20, your customers will see this when they’re in the checkout and know that the code they’re expecting to see has been applied, but they won’t need to enter a code as the discount has already been automatically applied.
For both options (Discount Code and Automatic Discount), in the Types section (which is the next section down the page — see Figure 14-4), select the discount type that you want to create.
You have four options when you select create a Discount Code, and three options when you create an Automatic Discount (the Free Shipping Discount drops off when you select Create Automatic Discount):
I look at Buy X Get Y and Free Shipping discount codes in the next two sections of this chapter.
If you select Percentage or Fixed Amount under Types, you see a Value box in the next section (below Types). Enter a monetary or percentage value for the discount in the box, depending on whether you selected Percentage or Fixed Amount (for example, 20% or $20).
This step applies whether you are creating a Discount Code or an Automatic Discount.
Optional: If you want to set a minimum requirement for the discount, then select one in the Minimum Requirements section.
Select from the following options:
Minimum Purchase Amount: This requires customers to spend a minimum amount to qualify for the discount.
If the discount applies to a specific product or collection, then only these items contribute to the minimum purchase amount.
Minimum Quantity of Items: This requires customers to order a minimum number of products to qualify for the discount.
If the discount applies to a specific product or collection, then only these items contribute to the minimum quantity amount.
In the Customer Eligibility section, select who this discount applies to: Everyone, Specific Groups of Customers or Specific Customers.
Usually you would select Everyone and just distribute the discount code to whoever you like; for example, you might create a discount code that you email to your VIP customers, but you can still select Everyone and rely on the email to ensure it reaches the customers you are targeting.
Use the search field to choose the individuals or groups that you want to receive the discount. Customer listings show the email used to register for your store. If no email was provided, then the listing shows the customers’ phone numbers.
To remove an individual customer or group of customers from eligibility for a discount, click the X next to the customer’s or group’s name.
If you want to limit discount usage, then check one of the options in the Usage Limits section.
You can limit discount use in two ways:
Use the calendar in the Active Dates section to set the start date for the discount.
If you want to set an end date for the discount, then click on Set End Date and use the calendar to choose when the discount ends.
If you don’t want to choose an end date for your discount, then it doesn’t expire. If you want the discount to be valid for only one day, then select the same calendar day for both the start date and the end date.
Click on Save Discount.
If you’re setting up an automatic discount, you see Save Discount, whereas if you’re setting up a discount code, you see Save Discount Code.
Your new discount appears in the Discounts tab in your Shopify admin. To distribute this discount, you can send the code to your customers by email, use it in other forms of marketing (which I look at in chapters 15, 16 and 17) or display it on your online store in the announcement bar or on a homepage banner.
The name of the discount is a good description of the functionality it provides: What does the customer have to buy, and what do they get for free, or at a discount, for buying it? Typical promotions that work here are ones like buy a T-shirt and get a free hat, or buy one water bottle and get a second one free.
To create a Buy X Get Y discount code, follow these steps:
From your Shopify admin, go to Discounts.
The Discounts page appears.
Click on Create Discount.
The Create Discount dialogue box appears (refer to Figure 14-3). You’re presented with two options: Discount Code and Automatic Discount.
The steps for both options are the same, with one exception. If you select Discount Code, you’re asked to create a code for the customer to enter at checkout; however, if you select Automatic Discount, you won’t need a discount code so you get to skip that step.
Here, I show you how to set up this promotion when you select Discount Code.
Choose Minimum Quantity of Items or Minimum Purchase Amount.
Set the number of items that the customer must buy or the amount of money that the customer must spend to be eligible for the discount (for example, if you’re offering the customer a third item free if they buy two, then the customer needs to buy two items; if you’re offering a ‘spend X and save’ promotion, then the customer may have to spend $100 to get the discount). These are the triggers that will activate the discount.
In the Any Items From section, choose whether you want to include products or collections to limit where the qualifying items come from (that is, if you only want to apply the promotion to certain products or collections, as opposed to your entire product catalogue).
Use the Search Products field or the Browse button to add products or collections to the promotion. If you want to remove a product or collection from the discount, then click on the X next to it to delete it from the list.
In the Customer Gets section (see Figure 14-6), configure the following settings:
If you want to create a create a Buy One Get One Free offer on a specific product, you can enter 1 in the Quantity field of the Customer Buys section, and then search for the product in the Search Products field, and then in the Customer Gets section that follows, you can enter 1 in the Quantity field and search for the product that will be given for free. Remember to select either Free under the section At Discounted Value or, if you would rather offer a discount (such as 50% off the second item), check the Percentage option.
In the Customer Eligibility section, select who this discount applies to: Everyone, Specific Groups of Customers or Specific Customers.
Use the search field to choose the individuals or groups that you want to receive the discount. Customer listings show the email used to register for your store. If no email was provided, then the listing shows the customer’s phone number.
To remove an individual customer or group of customers from eligibility for a discount, click on the X next to the customer’s or group’s name.
If you want to limit discount usage, then check one of the options in the Usage Limits section.
You can limit discount use in two ways:
In the Active Dates section, configure the date settings.
Use the calendar to set the start date for the discount. If you want to set an end date for the discount, then click on Set End Date and use the calendar to choose when the discount will end.
If you don’t choose an end date for your discount, then it doesn't expire. If you want the discount to be valid for only one day, then select the same calendar day for both the start date and the end date.
Your new discount appears in the Discounts tab in your Shopify admin. To distribute this discount, you can send the code to your customers by email or display it on your online store. Your customers need to add the items to their cart and then enter the code during checkout to receive the discount.
If you want to offer free shipping, then you can create a free shipping discount, which can be useful for flash sales (short promotions at random times, outside of typical promotional periods, that usually last 24–48 hours) or as a reward for spending a certain amount.
To set up a free shipping discount code, follow these steps:
From your Shopify admin, go to Discounts.
The Discounts page appears.
Click on Create Discount.
The Create Discount dialogue box appears (refer to Figure 14-3). You’re presented with two options: Discount Code and Automatic Discount.
If you want to exclude free shipping for shipping rates over a certain monetary value, then check Exclude Shipping Rates Over a Certain Amount and enter the amount in the field.
This discount applies to shipping rates only and is unrelated to order amounts.
Optional: In the Minimum Requirements section, select Minimum Purchase Amount or Minimum Quantity of Items, and then enter the dollar value or number of items that need to be added before the discount code applies.
Cast your mind back to Chapter 6, where I looked at free shipping as a possible means for driving sales: here’s where you can experiment with free shipping before making any permanent changes to your free shipping threshold. For example, try offering free shipping on all orders, and watch the uptick in sales to see if it offsets the cost of you absorbing the shipping fees.
In the Customer Eligibility section, select who this discount applies to: Everyone, Specific Groups of Customers or Specific Customers.
Use the search field to choose the individuals or groups that you want to receive the discount. Customer listings show the email used to register for your store. If no email was provided, then the listing shows the customer’s phone number.
To remove an individual customer or group of customers from eligibility for a discount, click on the X next to the customer’s or group’s name.
Discount usage is unlimited by default. If you want to limit discount usage, then check one of the options in the Usage Limits section.
You can limit discount use in two ways:
Use the calendar in the Active Dates section to set the start date for the discount. If you want to set an end date for the discount, then click Set End Date and use the calendar to choose when the discount will end.
If you don’t choose an end date for your discount, then it doesn't expire. If you want the discount to be valid for only one day, then select the same calendar day for both the start date and the end date.
Your new discount will now appear on the Discounts page in your Shopify admin. To distribute this discount, you can send the code to your customers by email, or display it on your online store.
Here’s a few helpful discounting tips and shortcuts you can use to save time when managing discount codes in your Shopify store.
A shareable discount link might be useful when you’re starting out — for example, if you want to create a discount code for family and friends and share it around to get some traction for your new online store. You can also use a shareable link on social media, give it to influencers to share or use it in your email marketing.
Follow these steps to create a shareable link for a discount code:
From your Shopify admin, click on Discounts.
The Discounts page appears.
Click on the name of the discount that you want to promote.
For example, click on the FREESHIP code that you might have created to offer free shipping on all orders for a limited time.
Click on Promote in the top-right corner of the discount you have clicked into, and then select Get a Shareable Link from the drop-down menu.
A dialogue box appears with a URL that you can use across your social media or marketing communications, which will automatically apply the discount to the checkout of customers that click on the link.
The options available for you to link to depend on the specific products or collections included in your active discounts.
After you copy a shareable link to your clipboard, you can post or embed it wherever you want to promote your discount.
You can filter your discounts in your Shopify admin so that you can check the discounts that are used most frequently, or check for all the enabled discount codes currently running in your online store.
To filter your discount codes, follow these steps:
From your Shopify admin, click on Discounts.
The Discounts page appears, displaying all discount codes that have been created in your store over time (see Figure 14-7).
Choose how you want to filter your discounts from the list of options you can see after the Filter Discount Codes search field.
You can filter by Discount Type or Status — or click on More Filters, where you can filter by the number of times a discount code has been used.
You may not need to do this much in your early days as you won’t have many discounts to filter through, but as you add more to your store this becomes a handy tool.
From time to time you might get it wrong (you’re only human!) and need to edit your discount code. Alternatively, you may need to adjust a discount for a specific purpose — for example, if you create a discount code that can only be used once, you may then want to edit it for additional one-off usage.
To edit a discount code, follow these steps:
From your Shopify admin, go to Discounts.
The Discounts page appears.
You may occasionally need to disable a discount code — for example, if you create a welcome discount for new newsletter subscribers and it gets leaked across coupon sites, which means lots of people are using it without the desired intention of having them sign up to your newsletter.
To disable a discount, follow these steps:
From your Shopify admin, go to Discounts.
The Discounts page appears.
On the Discounts page, locate the discount that you want to disable and click on the discount’s name.
A page showing the details of the discount appears.
At the top of the page, click on Disable.
A dialogue box appears, asking you to confirm.
Whoops – disabled the wrong discount code? No problem!
Follow these steps to re-enable a discount:
From your Shopify admin, go to Discounts.
The Discounts page appears.
On the Discounts page, click on the disabled discount that you want to re-enable.
The details of the discount appear in a new page.
At the top of the page, click on Enable.
A dialogue box asking you to confirm appears.