Many SME owners confuse higher sales volumes with business growth. A surge in orders during a promotion can feel like success, but it often hides a dangerous commercial reality.
When a discount is too deep or poorly structured, the cost of fulfilling the extra orders can exceed the profit earned. This is how businesses run promotions destroying margin, effectively paying customers to take their products.
The mathematics of margin erosion
Margin is the difference between the selling price and the cost of goods sold (COGS). If a retail product costs 7,000 Naira to acquire and sells for 10,000 Naira, the gross profit is 3,000 Naira.
A 40 percent discount drops the price to 6,000 Naira. In this scenario, the business loses 1,000 Naira on every unit sold.
Even a smaller discount can be lethal when overheads are included. Shipping, packaging, and payment processing fees are often ignored in the initial discount calculation.
For a small logistics or e-commerce firm, a “free delivery” promotion can quickly wipe out the entire profit margin of a low-value item.
Common promotional mistakes
The most frequent error is the blanket discount. Applying a percentage off everything in a store ignores the fact that different products have different margins.
Discounting a “star” product that already has high demand often wastes margin. Customers would have paid full price, meaning the discount provides no incremental value to the business.
Another risk is the permanent discount. When a “limited time” offer lasts for months, customers stop buying at full price. This resets the perceived value of the brand and makes it impossible to return to normal pricing.
This creates a cash flow gap. The business must spend more on raw materials and labor to handle the higher volume, but receives less cash per unit to fund those operations.
Strategies for sustainable growth
Bundling is a more effective alternative to flat discounts. By pairing a high-margin item with a low-margin one, the average order value increases while the overall margin remains stable.
Threshold-based promotions also protect the bottom line. Offering a discount only when a customer spends above a certain amount ensures the volume is high enough to offset the price reduction.
Targeted promotions are more resilient than public ones. Providing a discount via a private code to loyal customers prevents the general market from expecting lower prices.
These methods ensure the promotion acts as a tool for customer acquisition rather than a drain on working capital.
Before launching any price reduction, calculate the break-even volume. Determine exactly how many more units must be sold to make the same total profit as you would at the full price.
