I saw a lot of craziness this past Black Friday. Roomba's at 50% off, Xbox's 50% off, and Timbuk2 bags 50% off. 50% is a lot of margin And it makes me question how well store owners actually do.
Black Friday is the day where you're make so many sales your store goes from in the red (owing money) to in the black (making money). To do that you need to make a lot of profit. The keyword there is profit not revenue. If you aren't making enough profit on each sale you could still be losing money.
Getting people in the door is easier said than done. To draw the crowds you have to offer discounts and those discounts start eating away at your profit. So it's a balancing act to offer the right discount to draw people in and still make enough profit.
The good news is that you don't have to run a Black Friday promotion like everyone else. You can give tiny discounts, freebies, or you don't have to run a promotion at all if you don't want.
Do I Have To Run A Black Friday Promotion?
No one is putting a gun to your head and forcing you to run a promotion. But if you sell the exact same product as your competitors and they're running a promotion you're not going to get much traction. Customers – especially tech-savvy ones – are going to move towards the cheapest deal.
Side rant: this is one of the reasons I recommend selling you own product. When you make or produce your own product you don't have to play someone else's game. You can choose to skip Black Friday and sell your product when you want and for how much you want.
This is exactly what Apple does. They had zero Black Friday deals and they still probably made a killing. (I've stopped by Apple stores on Black Friday and they are packed.)
How To Run a Black Friday Promotion
Whether you want to or have to (because a competitor is running on) run a promotion you need to do it strategically.
Optimize For Profit
The most important thing to do is optimize for profit. Not revenue. I often see store owners promote their least profitable products instead of their most profitable products. That means if you have a $50 item where you make $25 profit. And a $100 item where you make $20 profit you should promote the $50 item.
The one exception here is you use less profitable products to draw customers in to buy other products. A good example might be someone who sells TVs. TVs and electronics in general don't have much margin. You might only make 5-10% margin on a TV meaning if it's a $400 TV you might make $40. If you sold two DVDs you could make just a much profit.
So you could discount the TV from $400 to $375 (only $5 profit) as long as the customer buys at least 5 items from the store. That way they're likely to pick up those DVDs and other high margin products.
When I saw Roombas as 50% off on Amazon I was astonished. This was one of the highest rated cleaning robots around and they were barely making any money on it. And it was on Amazon.com meaning there's no way they could control the sale. They couldn't add any conditions like buying other items or anything like that. And they don't get the email address for remarketing purposes.
The company likely saw similar products being discounted and didn't want to miss out on sales. What they didn't know is that I was planning on buying an automated cleaner anyway. When I saw it on sale I bought it for the discounted price and saved a few hundred dollars. That's great for me. But it means that retailers lost that money.
I wasn't choosing between that automated cleaner and a different model. I had already made my decision and just decided to wait to see if there was a Black Friday deal.
We've Trained Customers
There are several articles about Black Friday negatively affecting sales. The most interesting of these are from British companies that only started offering Black Friday deals in the last decade.
Black Friday caused consumers to start their Christmas spending earlier but didn’t result in much of an uptick in the total amount they spent over the festive season
Many retailers don't realize this but they're trading 1.5 months worth of full price purchases for a crazy weekend of discounted purchases. That's a net loss for many stores.
[…] the level of discounts being offered would only serve to ‘suck out any profit from the November margin’ and that ‘profitability in the long term would inevitably fail’
Who is Your Customer
The last thing to consider is who you're incentivizing to buy your product. Are these loyal customers who are going to come back every year even if you don't have a sale?
Or are they customers who will always buy the cheapest price, demand the most customer support, and trample your other customers in your store?
Crazy sales do the latter. You're making more sales but not creating any long term loyalty. If you need money this month go for it. If you're trying to build long term loyalty spend your efforts elsewhere.
Opt-Out
If you have the ability since you're not getting new loyal customers you can sit out. You won't make as much revenue as other stores but you'll likely remain profitable. And you won't have to deal with the stress.
If this is your first year in business I recommend sitting it out. So you have a baseline. A friend of mine did that this year. He ran zero Black Friday promotions, he didn't even send out a newsletter or Facebook post and he made 4X his normal sales for that weekend.
When you get loyal customers like that you probably don't need to do discounts. Maybe just send out a newsletter & a Facebook post and then enjoy the rest of the day with your family.