The discount dilemma: Making Shopify discount codes work for your business

Update: As of April 1, 2016, Shopify has updated the discount feature to allow codes to be limited to one use per customer, based on the email address. This post has been updated to reflect this and offer tips on how to prevent abuse of the first order only feature. See the "First orders only" section below.

For most Shopify store owners, using discount codes and coupons with Shopify themes are a double-edged sword. Sure, they’re great for getting new customers and encouraging purchases, but they can also create headaches from a business standpoint.

However, using discounts doesn’t have to mean bleeding money left and right — if you follow these tips and ideas.

Consider your discount level

When considering how much of a discount you offer, be sure to analyze how much revenue you’re willing to lose to gain a specific order.

This exact amount will vary greatly based on your product line and profit margins, so be sure to consider all of the factors.

Also, don’t forget that discount codes can be adjusted to only be valid (or not valid) on certain products, collections or order totals. This can be a great way to create enticing offers that still make sense from a financial standpoint.

For example, higher margin items or clearance items that represent inventory you need to move out can all be placed in a collection that is eligible for higher discounts. Keep in mind that you can create collections soley for this purpose that don’t appear in your navigation menus.

If your goal is to gain new customers, you may be able to tolerate a higher loss — but this is typically only a good strategy if customers are likely to make future purchases that can be more profitable.

That said, this “cost to acquire” strategy can cause other issues, especially since the Shopify platform is unable to limit discounts to first time orders only (more on that in a bit).

First orders only

While Shopify now supports limited discount codes to one user per customer, keep in mind it’s relatively easy for customers to “game” the system by using an alternate email address or credit card to get around this limitation.

There are a few possible ways around this limitation:

• Use the discount code limitations to restrict the code to only be valid on certain products or collections. You may be able to strategically limit the code so it’s unlikely a customer would need or want to purchase more than one of the same item or type of product.
• Set a deadline or expiration date for the coupon, so that there is a very small window of opportunity to use the discount; this also creates a sense of urgency that encourages shoppers to follow through with their purchase before the coupon disappears.
• Finally, keep in mind that if a customer does find a way to game the system and get around these limitations, it may simply be easier to accept the order with the loss. If you’ve been careful about how the offer is structured, you may still make a decent profit on these orders.

For truly chronic abusers, you can always consider canceling the order and contacting the customer directly and, politely but firmly, explain the discount is not valid for existing customers and they are welcome to place another order without the code.

If appropriate, you could consider offering an alternate discount, perhaps at a lower discount or with a higher minimum order.

While it may seem counterproductive to refuse an order, consider that customers who repeatedly abuse the system may not be worth keeping as customers.

Experiment

Try experimenting with different offers — such as free shipping vs. a percent off vs. a set dollar amount off. Try running one offer prominently for a specified period of time, monitor order sizes that utilize it, and then try another for the same amount of time.

To be sure the results are valid, you may want to avoid running these tests during holidays or other higher traffic times and, if two time periods have significantly differing traffic levels, let the experiment run longer until the numbers are more even.

Often free shipping, percentage and flat dollar discounts end up being relatively the same value, but there are numerous psychological factors that vary greatly based on your customer base and product offerings that may make one offer or another appear to be a better deal.

Promoting your offer

There are many ways to get the word out about your special offer:

• Use the promotional banner, if included in your Shopify theme, to mention the offer and code.
• Integrate with your email marketing service to automatically send an email to customers who sign up for your mailing list and make sure to add that info to your newsletter signup message or popup, as an incentive such as “Subscribe today and save 15% on your next order!” Spotlight the promotion in one or more of your homepage banners. This is especially effective for discounts that may only be valid on certain products or collections.
• Use the content at the top of your collection page to promote offers that are most relevant to shoppers browsing that collection.

Terms and conditions

It’s also a good idea to make sure your terms and conditions cover discount codes. Even if you never enforce these policies, it’s better to have some text to reference during customer service issues that may arise.

Some good points to include may be:

• Discount code offers may be restricted to use by certain customers or on specific products or orders and (your store name) reserves the right to cancel, modify or restrict these offers at any time without notice and for any reason.
• Discount code offers may not be shared, sold or bartered. Discount codes from unauthorized Internet postings are not valid and may be declined.
• (Your store name) reserves the right to decline and cancel orders placed with discount codes at its sole and final discretion. Placement or confirmation of an order does not constitute final acceptance of any order.

Discounts and abandoned carts

One phenomenon that’s been observed in multiple ecommerce studies is that, during the checkout process, customers who see a field for entering a discount code will abandon their cart if they aren’t able to get a discount.

In a way, it’s a bit of an odd Catch-22: You obviously want your discount code field to be visible for customers to use, but just by having it shown can send price-sensitive shoppers elsewhere.

However, many store business models adhere to the idea that it’s better to process a discounted order rather than lose a full price one.

There are, however, a few ways to avoid this and make your funnel more slippery:

• Create a page on your site titled “(Store Name) Discounts and Coupon Codes” that lists one or more generic discount codes for various purchase scenarios. For best results, you should include a link to this page somewhere on your site, such as in the footer, so that savvy users can find it.
• In a related point, you should try to get this page ranked highly by major search engines. Smart shoppers will, once they see a coupon code field, run a quick search for “(Store name) coupon” to see if one is available.
• Likewise, consider posting your codes to sites such as RetailMeNot.com and other coupon sharing services. These sites were originally meant as a way for shoppers to exchange codes, but savvy store owners are using it to promote sales.

When creating discounts using these methods, it’s a good idea to use different codes for each strategy so you can track which sources are bringing in the most customers and, if necessary, adjust your offer up or down based on the profitability of the orders that come in via that source.

Even if you opt to not cater to deal-seeking shoppers, another effective strategy can be creating a page, as described in the first point above, but, instead of listing discount codes, include some thoughtful content about why your store doesn’t offer discounts. For example:

• Point out that, in order to be fair, all customers receive the same affordable pricing without any gimmicks or specials. 
• Mention that your products are already value-engineered to be the lowest possible prices. If applicable, give specific examples.
• If applicable, mention that, while discounts aren’t offered all the time, you do run special sales. Include a signup form for your email newsletter or links to your social media accounts where such sales or offers are announced.
• Include specific talking points on why your products bring value that can’t be compromised by pricing or discounts.
• Mention lower cost alternatives to specific products that customers may not be aware of or bullet points on why higher priced products may be higher cost but also bring higher value.
• If applicable, mention that your store accepts PayPal Credit so users can make a purchase now and pay it off in installments.