Should you join the winter sales rush?

If you watch the news in early January, you’ll find it’s usually filled with pictures of busy shopping centres and crowded high streets and you’d be forgiven for thinking the country has gone sale mad. For some firms it’s a chance to redeem a quiet  Christmas or to clear out old stock; for others it’s an opportunity to start the New Year in style. If you’re a small business wondering whether to launch a sale of your own, here’s a useful checklist to help you decide:

First, ask yourself what is your objective in  holding a sale?

• Do you want to boost turnover?

• Do you want to increase profits?

• Do you want to attract more clients?

• Or do you want to improve customer loyalty?

It’s worth bearing in mind that a sale is unlikely to tick all these boxes. Here are a few points worth considering:

A sale can help boost turnover – but at a price

My family has been in the retail business for decades, so I learnt at an early age the golden rule about holding a sale: it might increase your revenue, but it could hurt your profits. Having a sale is a good idea if you’re trying to shift stock that you’ve found impossible to sell during the rest of the year. But if you’re trying to sell your best stuff why do it in a sale? The danger is that you will actually cannibalize your existing business, because you are likely to push a purchase back a couple of months and down to a lower profit margin. Customers may  simply think: “I won’t buy it now, I’ll hold on until their sale.”

A sale may get you more customers – but they might not be loyal ones

It is very difficult for any business to maintain a relationship with its clients that is based solely on price. Slashing your charges might attract more customers, but they may be more likely to desert you as soon as one of your rivals offers them a better deal.

You might think that you can use a sale as bait, to interest new clients who will quickly see what a good job you do. But it can be very difficult to persuade customers they should pay you more at a later date, no matter how much they like what you offer. Let’s say you’re a business consultant who offers new clients a 50% discount for their first month, charging them only £50 an hour. The trouble is those new clients won’t be able to get out of their heads that £50 must be the going rate. After all, that’s what you charged them at the outset. They might not be prepared to pay you £100 an hour next month.

It may  be better for a small business to offer clients extra services, as part of a special package, than to cut prices. So, for example, the business consultant could team up with a marketing expert to offer new clients a couple of free lessons on how to use social media as a marketing tool. That way, you’re providing them with a taster of the full range of services you offer to help them grow their businesses, rather than saying in effect: “Work with me – I’m cheap!”

Profit margins are always under pressure, and, in the current economy, most small firms can’t afford to cut them further. They want to grow their businesses, but the bedrock of any growth strategy is to hold on to your existing clients. Every company needs loyal customers, but you must earn that loyalty by offering them more than a cheap price. That’s why good customer service is so important. If you continually deliver on your promises to them, and offer them a service at a price they think is fair, then most of your clients will keep coming back. They will also tell their friends and family about you. There’s no better way to grow your customer base than through word-of-mouth recommendations.