Remember to take into account  the added expenses associated with scaling sales – increased cash flow for inventory; increased stock holding which requires more space, personal for handling the increased volumes as well as an increase in risk of damages and stock loss.

These expenses drive up your overall costs. So, is discounting truly worthwhile?

But what about “Loss Leaders” you might argue

Many champion loss leading as a primary discounting strategy—a tactic wherein you sacrifice short-term profit to acquire new customers, for long term profits.

Well again you are going to have to weigh up the cost of acquiring these new customers versus what you can expect to get back from them, after all marketing in maths – the cost of acquiring your customer versus the return on this investment.

To answer this question you need to know, no only how much the discounting strategy is costing you, but also what on average a customer is worth to you, immediately and over the lifetime of the customer. From there you can calculate how many new customers justify the cost of acquiring them.

Also, what’s the actual value of each loss leader customer? Could discounting attract bargain hunters who spend sparingly, rather than loyal, high-value customers?

Calculating Lifetime Value of a Customer

Calculating the lifetime value (LTV) of clients involves estimating the total revenue a customer will generate for your business throughout their entire relationship with you. The formula for calculating LTV can vary depending on the business model and specific factors you want to consider, but a basic formula often used