How to Structure a Friends-and-Family Discount

Set up friends-and-family pricing that protects margins while rewarding loyalty through clear tiers and rules.

1. Set your discount ceiling at 15-25% maximum. Cap friends-and-family discounts at 15-25% off retail to preserve gross margins. If your gross margin is 40%, a 20% discount drops you to 32% margin — still profitable. Go higher and you risk selling at break-even or loss.
2. Create three discount tiers with clear definitions. Structure tiers like: immediate family (20%), close friends (15%), extended network (10%). Define each category specifically — 'close friends' means people you see monthly, not every acquaintance. Write down the criteria to avoid awkward judgment calls.
3. Set purchase limits and blackout periods. Limit friends-and-family purchases to 2-3 transactions per year maximum. Block discounts during peak sales periods when you need full margins. No discounts on already-reduced items or loss-leaders.
4. Track discount impact on monthly revenue. Monitor friends-and-family discounts as percentage of total revenue monthly. Keep it under 5% of gross sales. If it hits 8-10%, you're either too generous with eligibility or your discount rates are too high.
5. Use discount codes instead of manual adjustments. Create unique discount codes for each tier rather than manual price adjustments. This gives you clean tracking data and prevents staff from making unauthorized discounts. Set expiration dates on codes quarterly.
6. Document the policy and communicate boundaries. Write down your friends-and-family policy and share it with staff. Include what's eligible, discount percentages, and frequency limits. Having written rules makes it easier to say no consistently and professionally.