Markdowns vs. Discounts – What’s the Difference

When you are running your own business, you know how important every penny is. So when it comes time to give a discount or markdown your product, you need to first understand the difference between the two.

A markdown is a devaluation of a product based upon its inability to be sold at the original planned selling price. An example of a markdown would be if you had a sweater for sale that was originally priced at $100 and after one month of slow sales, you decide to markdown the sweater  to 20% off, making it $80 at retail. Although you just lost $20 of your intended markup on that sweater, you are also inviting more people to purchase it at a price they may prefer than the original $100. Since the sweater had not been selling well at $100, offering a nice, markdowned price can often result in sales that would not happen otherwise. Hopefully a 20% discount will do the trick, however often you will find that you need to continue your markdown strategies based on slow sales, moving product from 20% off to 30%, 40% and more if necessary. Of course, this all should come in time. Don’t rush it but don’t wait too long, either. You want to sell the product while it’s still relevant to the season, the trends, and more.

A discount is a reduction in the price of an item or transaction based upon the customer making the purchase. Examples of this would be an employee discount, senior citizen discount, and frequent-buyer discount. Many retailers offer discounts because they find that customers return to their store versus others because of the discount provided to them. They often enjoy the advantages they feel that discounts often give, such as being a preferred customer and therefore getting special treatment. Some boutiques offer friends and families discounts, which benefits both the retailer and those getting the discounts. If you are getting business because you are offering discounts versus letting potential customers be more selective as to where they shop since they do not have any special treatment from anywhere, then you are making money you would’t be otherwise. It’s a win-win on both sides. How much you decide to provide in your discounts is up to you, but I think 10% is just a little kind, with 15% being more friendly and 20% being great. More generous discounts, such as 30%, 40%, or even more should be made with careful consideration. Afterall, you are trying to run a business and make money doing so!

Both a markdown and a discount can be temporary or permanent, depending on how you market them to your customers. An example of a temporary discount would be if recent high school granduates received a percentage off all their purchases with proof of diploma witihin 30 days of graduation. A temporary markdown example would be if you had a one day sale, offering markdowned prices for only a specific amount of time. Temporary discounts and markdowns are commonly used at retail to entice consumers and should always be considered in your marketing strategies. You can use both discounts and markdowns as part of your sales strategy to help make the most out of your inventory sell thru and ultimately, your sales goals.

Too often I have visited boutiques that do not markdown their product at all. Months later I will visit the same boutiques and find that many of the same, regular priced items are sitting on the shelves at the same price. Customers have the right to be selective in their shopping decisions, as do you as a buyer of your store. But it needs to be recognized sometimes that all your store purchases may not be slam dunks. Nearly all stores have markdowns at one time or another, and almost always at the end of a season. Wasting your retail floor space with products that are not selling will not help you at all, so consider how markdowns and discounts may be able to work for you in your sales strategy.