The Discount Trap: Why Cutting Prices Rarely Works

Sales have slowed. You need to hit a number. The obvious lever sits there waiting: cut the price, move more volume.

It feels logical. Lower prices mean more customers, right? More customers mean more revenue. More revenue solves the problem.

Except the math rarely works that way.

The Math You Need to Do

Before cutting prices, do this calculation: how many additional customers do you need to maintain the same total profit?

The answer is almost always higher than founders expect.

Say you sell a product for $100 with $60 in variable costs. Your margin is $40 per sale. If you cut the price by 20% to $80, your margin drops to $20 per sale.

To maintain the same total profit, you need to double your volume. Not increase by 20%—double. A 20% price cut requires a 100% increase in customers.

The relationship is not linear. As margins shrink, the volume requirement explodes.

Why Volume Rarely Follows

The discount trap assumes that lower prices automatically mean more sales. In reality, price is rarely the only—or even primary—barrier to purchase.

Customers who were not buying at $100 often still do not buy at $80. The barrier was not price but awareness, trust, timing, or fit. Lowering price does not address any of these.

Meanwhile, customers who would have bought at $100 now pay $80 instead. You have given away $20 of margin on sales you would have made anyway.

This is the core dynamic of the discount trap: you sacrifice margin on certain sales in exchange for uncertain volume on additional sales.

The Quality Problem

Even when discounts do increase volume, the customers they attract are often the wrong customers.

Price-sensitive buyers tend to be higher maintenance, more likely to churn, and less likely to refer others. They came for the deal, not the value. When the next deal appears elsewhere, they leave.

You end up working harder to serve customers who value you less and stick around for less time. The lifetime value math gets worse, not better.

The Positioning Damage

Prices communicate value. When you discount, you are not just changing a number—you are changing what your product means in the market.

Regular discounting trains customers to wait for sales. It signals that your regular price is not the real price. It erodes the perceived value of what you sell.

Once you start, stopping is hard. Customers feel cheated paying full price when they know discounts exist. You have created an expectation you cannot easily undo.

What to Do Instead

When sales slow, discounting is usually the wrong lever. Better alternatives exist:

Improve the offer without cutting price. Add bonuses, extend terms, increase service levels. You preserve margin while increasing perceived value.

Fix the real barrier. If price is not the issue, discounting cannot solve it. Talk to prospects who did not buy and understand what actually stopped them.

Target a different segment. Maybe your current audience cannot afford you. The answer might be finding customers who can, not lowering prices for those who cannot.

Accept lower volume at higher margin. Sometimes fewer customers at full price beats more customers at a discount. The math often supports this even when the psychology resists it.

The Decision Framework

Before discounting, answer these questions honestly:

• What volume increase do I need to maintain profit? Can I realistically achieve it?
• Is price actually the barrier stopping prospects from buying?
• What type of customers will the discount attract? Are they customers I want?
• Can I contain the discount (new customers only, limited time) or will it spread?
• What does this do to my positioning long-term?

If the answers are not clearly favorable, the discount is probably not either.