Margin-smart discounting: a guide to profitable Shopify discounts

A playbook from Caddis Eye Appliances’ VP of Performance Marketing

It’s easy to fall into the habit of repeatedly offering the same blanket discount because it spiked sales in the past. Or worse, arbitrarily picking a discount and crossing your fingers for the best. 

Strategic Shopify marketers like Becky Chambers of Caddis Eye Appliances approach discounting differently. They treat them as investments fueled by meticulous planning, specific goals, and post-promo analysis. 

In this margin-smart discounting playbook, Becky shares a five-step process for running successful promos and determining whether discounts actually drive incremental revenue.  

Meet the expert 

Becky has decades of experience leading DTC full-funnel marketing for lifestyle brands. As VP of Performance Marketing, she oversees loyalty programs, customer relationship management, and retention initiatives for the Caddis eyewear brand. 

“The best performance marketing engine relies on deeply understanding the customer,” Becky says. “I’ve spent my career bridging the gap between what the numbers show and what a customer actually feels.”

Becky is an expert at poring over discount code analytics to evaluate their expense, payoffs, and efficiency. 

The 4 principles of smarter discounting 

Running broad promotions like a BFCM sale is part of the ecommerce playbook. But prudent discounting involves — as Becky puts it — “under-the-hood” targeting year-round. 

Margin-smart discounting isn’t just a marketing tactic. It’s an intentional strategy buoyed by a handful of core beliefs: 

1. Targeted promotions beat blanket promos. Tailoring Shopify discounts based on a person’s actions or inactions is the definition of personalization. You limit unnecessary giveaways while upholding your brand’s perceived value. 
2. Unique discount codes are critical for control. One-time coupon codes — which Becky generates through Seguno’s Bulk Discount Code Bot — prevent leakage, safeguard margins, and enable richer offers. They come with something else: attribution for deeper analysis. 
3. Efficiency is paramount. A large discount might skyrocket sales, but it’s essential to ask, “Does this discount actually earn its keep?”
4. Testing is key to scaling. There’s experimenting with discount types. And then there’s elevating testing with control groups for reassurance.  

A five-part playbook for efficient discounting

Becky explains it’s important for Caddis discounts to be additive and create new sales, saying, “We don't want to lose money on purchases that would have happened without it — or lose margin where we don't have to.”   

Below is the process she recommends if you want to engineer a “covert and strategic” promotion. 

Step #1: Identify which customers to target

Other than the occasional sitewide sale for large events like BFCM, limit your discounts. 

Becky primarily applies discounts to lifecycle segments through Caddis automations:  

• Email subscribers receive a new customer discount in the welcome email
• Lapsed purchasers receive direct mail with a code 
• Loyalty members receive discount codes when hitting thresholds

She also sends newsletter campaigns to particular customer segments. 

“There are times when we will target people in a really specific way,” she says. “For example, if there's a color we think they would like or we want to get them into new categories, such as prescription or sunglasses.” 
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Segment easily with the Shopify data you already have. Download our Advanced Shopify Segmentation Playbook and get 13 ready-to-use Shopify segments.

Step #2: Create and run your promotion 

After you’ve settled on the promotional pricing strategy and Shopify discount type, create a set of unique codes with discount safeguards to prevent leaks. 

Seguno’s Bulk Discount Code Bot is an integral component of Becky’s discounting program. With it, she creates unlimited unique codes that can be uploaded to any marketing channel. 

The app also enables granular attribution. Use Campaign, Department, and Channel fields to deepen data collection and simplify reporting.

Promote your discount codes through the channels that make sense for the message and target segment.   
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Step #3: Identify efficient discounts 

At the beginning of every quarter, gather all the discount codes you offered over the previous three months. It’s time to determine the efficiency of every promo you ran. 

Here’s how to calculate efficiency for each discount:  

#1. Open the discount and copy the Discount ID from the end of the URL.

#2. Open the Shopify “sales by discount” report and enter the discount ID in the filter sidebar to isolate all codes under the discount. Be sure to set your timeframe to include when the discount was active. 

The example below shows reporting for one set of unique discount codes — including a topline tally of all unique codes used, followed by the performance breakdown for each individual code.

#3. From the summary line, extract the:    

• Total net sales (the full retail price minus the discounts and returns)
• Total applied discount (the total discount/promo cost

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#4. Calculate the efficiency by dividing net sales by the applied discount cost. In the example above, $37,358.96 in net sales divided by the $4,389.12 promo deduction equals an efficiency of 8.5x.

Whether 8.5x is efficient depends on the brand. Every brand needs to define a target efficiency based on its own margins. 

For Caddis, Becky defines efficiency as a return of at least 3x. For every dollar spent on a discount, she aims to generate at least $3 in net revenue. Any discount that meets this threshold is profitable. 

The 3x benchmark helps ensure:

• There’s room to cover the cost of goods sold (COGS), shipping, and operations
• The discount isn’t just buying revenue at a loss

Step #4: Examine performance from different angles 

Discount efficiency is a baseline performance measure. Refine your strategy — so you can target more wisely — with deeper analysis. 

Bulk Discount Code Bot provides exportable reports for analyzing data points such as code redemption prevalence and average order value (AOV) by code. 

There’s also a dashboard for slicing the data in multiple ways, so you can gauge which campaigns, channels, and company departments are making an impact. Analyze discount revenue, redemptions, and AOV by: 

• Discount set
• Promotional campaign/marketing effort
• Marketing channel for distribution
• The departments that created discounts 

Step #5: Continue to test

Once you’ve pinpointed efficient discounts and analyzed performance, use your findings to test discounts with other segments. You could also experiment by distributing promos through a different marketing channel.  

Or, add rigor with a test-control experiment. Send one-half of a segment the efficient discount (the test group) and the other half nothing (the control group). If you see a lift in the test group — net revenue, conversions, reactivation, etc. —  then it’s a worthwhile strategy.  

What margin-smart discounting achieves

Becky’s replicable process for deploying margin-smart discounts can have a ripple effect for any brand. Here’s what she’s seen at Caddis:   

• Higher promo efficiency year over year, leading to higher sales. “We spent more on promos last year versus the previous year, but we were way, way, way more efficient.”
• Zero leakage on sensitive discounts. Thanks to unique codes, she doesn’t worry about a targeted promotion going viral ever again.
• Hours saved each quarter. Her time-tested efficiency method reduces detective work and increases capacity for strategic planning.

Fuel your intelligent discount strategy with targeted promotions, experimentation, and the Bulk Discount Code Bot for creating, managing, and analyzing unique codes.