Boosting Business Cash Flow with Sales and Discount Strategy

Customer Discount

A business may actually stimulate cash flow or larger sales by offering customers a discount. But strings should be attached to avoid losses.

College mathematics professor Steve Alemansour has tutored elementary, high school, and college students since 1989 through his com­pany, Academy of Tutoring Professionals in Lake Forest, California. The business, while lucrative, is also highly seasonal. Steve typically charges $40, $45, or $50 an hour depending on the difficulty of the subject being tutored. Academy of Tutoring Professionals has more work than the staff of experts can handle after midterm grades come out and before final ex­ams. But during the summer and early in the new term, revenues slow sig­nificantly.

“If we can presell our tutoring services, it helps fill in a little during the slow months,” Steve says. “Typically, during August and into the early fall we offer a 5 percent or 10 percent discount for purchasing tutoring hours in advance. They must pay by a certain date.”

That discount not only serves to bring in cash during a lean period of the year but students and parents often buy more hours of service than they would if they bought them week to week, Steve says. Clients are especially willing to buy additional hours at a discount if the subject is a difficult one, such as physics, in which the student is likely to need help throughout the term.
Customer Discount

“We offer the discount to existing clients through a mailer at the end of the summer,” Steve says. “We also offer it to people who call after seeing our Yellow Pages ad. Some students and parents will buy 30 or 50 hours of tutoring for the coming semester and then come back and buy more right before the deadline for taking advantage of the discount.”

Many seasonal businesses use discounts to level the hills and valleys of revenue throughout the year, but discounts serve other capital purposes as well. Many companies use discounts to reward regular customers, which is likely to encourage them to remain loyal and to spend more, thereby in­creasing their lifetime value to the company. Companies boost cash flow by giving discounts for early payment or cash on delivery. They also may increase revenues by giving discounts for large-volume purchases and/or mid to high value items. For some corporate, bundling several offers like livestock scales and packages into a better deals could very well give more value to customers.

Dis­counts for longer term contracts can stabilize a company’s long-term finan­cial situation, which helps forecasting and planning. During bad economic times, a discount can be a better way to encourage sales than cutting prices outright because raising prices later is problematic, driving a certain per­centage of customers away.

Each of these uses of discounts can help a company’s capital position. However, the company must carefully track its revenues and profits to avoid charging less for its products or services than those items cost to pro­vide. Also, a business that advertises “interest-free credit” must not offer a discount for cash. It is false advertising to give a discount for immediate payment because it implies that the full price includes a dollar amount for interest.

“I’ve been using discounts for three years; I don’t know of a down side,” Steve says. “It makes sense. My customers put their purchase on a credit card so they earn extra flyer mileage or other bonuses; they get services for less money, and my cash flow improves during those slow months.”