How Do I Hold a Sale at My Business?
Most shoppers love a good sale because it can help them save money. When you're the shopkeeper, though, your reason for holding a sale is to boost sales. While you may think of the end of the year as the prime time for offers and promotions, business owners have lots of opportunities for sales throughout the year.
But before you hang the banners and spread the word, it's essential to ask yourself a few questions so that a sale supports your business in the long term.
Why am I holding a sale?
You may have several reasons to hold a sale, and each reason will impact your pricing and marketing strategies. For example, you may want to reduce inventory, whether you have overstock or excess seasonal merchandise. This could happen if you've miscalculated the demand for an item and ordered too much. Another reason to hold a sale is of course to attract more customers, both new and existing. Promotions can drive store traffic and attract new shoppers who may not have patronized your business yet. Sales can encourage them to try your products at a discounted price in hopes that they return. On the other end of the spectrum, a sale could put you top of mind to previous customers and encourage them to come back.
Entice customers to buy more by tying the discount to a transaction amount or number of items. For example, "Buy one, get one half off!"
Do I have enough merchandise?
The reason behind your sale will help you determine how much inventory you need. If you're clearing out excess stock, you probably won't have to worry about ordering more. But if you're providing a discount on newer inventory to engage new or current shoppers, you will want to make sure you have enough to meet demand. To determine how much stock to order, review past promotions and measure how the discounts impacted sales. Did you sell out of anything? Or did you order too much in anticipation of greater demand? Past performance can be a good way to predict your future needs.
When making decisions on ordering volume, it helps to know your turnover rate, which measures the overall health of your inventory. Calculate your turnover rate by dividing your annual cost of goods sold (COGS) by the value of your inventory. This will help you determine how many times you sell and replace inventory within a set period of time. For example, if your total COGS is $200,000 and an inventory value of $50,000, your turnover rate is 4.
A good turnover rate varies by retail type. For example, the average turnover rate for a clothing retailer is 4.2 while a grocery store is 14.7.1 If your ratio is lower than the average for your retail type, it could indicate that you need to better train your sales team or that your products are no longer popular. If your store has a rate that's significantly higher, it could mean your inventory levels are too low and you could be losing sales due to sold out products.
How will I communicate my sale to customers?
Your sale won't be successful if few people know it's happening. You can approach marketing in a few different ways. First, send an email to your existing customer base and promote your sale on your social media. Post signage in your store window, throughout your store, and on your website. Someone driving by might stop if they see colorful banners or balloons. This type of tactic can draw in more traffic. Tip: Consider using red in your signage. Red triggers action,2 which is why you often see it used in sales materials or "Buy Now" buttons on websites.
If your store is near other stores, you could join forces and hold a joint event, such as a tent or sidewalk sale. There is power in numbers, and a community sale could attract more shoppers. In this case, a rising tide can raise all boats, and you may find that everyone wins.
How much should I discount my prices?
The reason you're holding a sale should impact the types of discounts you offer. If your goal is to clear out inventory, consider putting deeper discounts on out-of-season merchandise and a smaller discount on your non-seasonal items. You can also entice customers to buy more by tying the discount to a transaction amount or number of items. For example, "The more you buy, the more you save! Get 30% off your purchase of $100 or more!" or "Buy one, get one half off!"
If your goal is to bring in new customers, you may consider aggressive pricing tactics, such as offering one item in your store at a significant discount to get people in the door. While you won't want to sell things below cost, you may want to consider discounting them to your cost plus a portion of your normal profit margin, such as half or a third. The average gross profit margin for a clothing retailer is 46.5%, while a grocery retailer is 28%.1
When you offer a deep discount, however, you'll want to sell customers additional products to offset the reduced profit. Before you hold this type of sale, be sure to work with your employees to improve their selling skills.
If your goal is to re-engage past customers, consider personalized offers. Send an exclusive code or coupon to your email subscribers rewarding their loyalty to your store. Or offer a free gift with their purchase. Nearly three-quarters of shoppers only engage with personalized marketing messages,3 and 90% of shoppers are willing to give their personal information to a business in order to get exclusive discounts.
A sale can be a great way to drive traffic, engage with your customers, clear out inventory, and boost sales. By taking time to prepare and understand your goals, you'll have a better chance of having a successful experience.
Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
- Jim Woodruff, "What Is the Average Gross Profit Margin for a Small Retail Business? " Small Business Chronicle, updated March 4, 2019, accessed October 18, 2020. Back
- The Daily Egg, "6 Colors That Are Proven to Boost Sales," updated March 24, 2020, accessed October 14, 2020. Back
- Smart Insights, "Majority of consumers will only engage with personalized marketing messages," published July 29, 2019, accessed October 14, 2020. Back