For many of our clients and DTC brands in general, welcome discounts have long been a go-to strategy for converting first-time customers. A simple 10% off for signing up to an email list is a well-worn tactic across e-commerce. But is it actually worth it?
At first glance, the logic is simple: lower the barrier to entry, acquire more customers, and get them into your ecosystem. But in reality, welcome discounts often eat into already tight margins, fail to guarantee repeat purchases, and train customers to expect discounts. With rising customer acquisition costs (CAC), this raises the question - are welcome discounts actually helping, or are they just a margin-eroding habit?
The cost of a welcome discount
To understand the impact of welcome discounts, let’s look at an example use case.
| Discounted Purchases | Full-Price Purchases | |
|---|---|---|
| Average Order Value (AOV) | £50 | £50 |
| Welcome Discount | -£5 | - |
| Net Sales | £45 | £50 |
| COGS | -£12.50 | -£12.50 |
| Shipping & Handling | -£4 | -£4 |
| Return Handling | -£2.50 | -£2.50 |
| Gross Profit | £26 (58%) | £31 (62%) |
| Customer Acquisition Cost (CAC) | -£12.50 | -£12.50 |
| Profit Per Order | £13.50 (30%) | £18.50 (37%) |
| Orders needed for £1m profit | 74,074 | 54,054 (-27%) |
This shows that brands offering welcome discounts need **27% more orders** to reach £1m in profit compared to those selling at full price. While welcome discounts may improve conversion rates, they significantly reduce per-order profitability.
What's the alternative to welcome discounts?
Instead of eroding margins upfront, brands can explore alternative strategies that drive conversion while encouraging long-term customer value.
Alternatives for single-purchase brands
For brands that rely on one-off purchases, loyalty and membership programs offer a strong alternative. Instead of giving discounts to first-time buyers with no guarantee of repeat business, these programs reward returning customers, increasing retention and lifetime value. Shopify membership apps allow brands to offer exclusive perks, early access to products, or free shipping for committed customers.
- Product bundling on Shopify – a strategy we’ve implemented with Frobishers, Eleat, Hearth, and Bundlee to increase AOV while maintaining perceived value.
- Gift incentives – Eleat has successfully used free spoons, bowls, and even branded socks to encourage first-time purchases and increase perceived value.
- Exclusive content or experiences, making a purchase feel more valuable without discounting.
Alternatives for subscription and membership brands
Subscription and membership-based brands have even more flexibility when it comes to incentivising new customers. Instead of offering a discount on the first purchase, brands can structure promotions that apply on the second or third order, ensuring the customer has already committed before receiving the benefit. Shopify-powered subscription apps, such as Skio or Recharge, make this easy to implement.
- Surprise-and-delight rewards, where customers receive unexpected perks just as they are most likely to churn.
- Prepaid subscriptions – seen in brands like Origin Coffee and Citizens of Soil, where customers commit upfront in exchange for savings and added value, increasing AOV while stabilising cash flow.
- Tiered loyalty programs – a tactic used by Origin Coffee and Freja, where customers can unlock better rewards in-cart, such as buy-more-save-more offers or free gifts at specific thresholds.
For both single-purchase and subscription brands, loyalty apps can play a crucial role. By structuring rewards around high-value actions - like repeat purchases or referrals-brands can drive retention without relying on discounting.
The takeaway
While welcome discounts may offer a short-term conversion boost, they often come at the cost of long-term profitability. Brands should consider whether the trade-off is worth it, or if alternative strategies like bundling, memberships, or subscription-based incentives could drive stronger results.
For DTC brands looking to grow sustainably, the key is not just acquiring customers - it’s keeping them.