Small businesses often discount their products and services for employees, friends, family and loyal customers. Unfortunately, these well-meaning practices can lead to misuse, fraud and revenue loss if employees don't follow the rules. Workers might, for example, discount merchandise in exchange for a cash bribe. Or they could innocently extend the discount to someone who claims to know your business's owner.
If you offer a discount program or even just extend discounts on an informal basis, you might want to consider discontinuing the practice. A total ban on discounts is the easiest way to prevent abuse. However, most businesses are reluctant to go that far. So consider taking these seven steps to reduce the risk of fraud:
- Put your policy in writing. Often, discounting happens because workers feel they should reward frequent customers. To guide them, create a written policy that explicitly states when and how to issue discounts. The policy should also outline consequences for violating it. Be sure to regularly review your discounting policy with employees.
- Create a tagline. To remind employees of the rules, come up with a simple tagline that captures the essence of your policy. For example, you might name the program "Rewarding loyal stakeholders," or "Exclusive savings for employees, friends and fans."
- Place notices in breakrooms. Another way to publicize the program and highlight its restrictions is to post notices in employee breakrooms. Notices should clearly outline the policy and encourage employees to direct questions to a member of management.
- Require management approval. Don't allow employees to offer discounts without oversight. A manager should approve every eligible transaction. Of course, you need to ensure that managers fully understand the program and always follow the rules themselves. Take disciplinary action if managers override any policies.
- Don't allow discounts for service recovery. If your business fails to deliver products or services as promised, don't allow employees to use your friends-and-family discount for service recovery. If workers need to acknowledge errors or missteps by discounting a customer bill, require them to use a separate set of discount codes.
- Monitor service tips. Customers sometimes give outsized tips to reward employees who offer discounts. These tips are often made with cash to avoid creating a paper trail. If possible, monitor any tips your employees receive and investigate if something seems off.
- Track frequency and volume. If your point-of-sale system allows it, use the system to issue discounts. Routinely analyze the discounts each employee has offered by frequency and total amount. If some workers stand out, meet with them to ensure they understand the program and its purpose.
A friends-and-family discount program can be a powerful way to build goodwill, but only if it's implemented effectively. By putting your policy in writing, training staff and monitoring its use, your business can balance two important objectives — encouraging loyalty and protecting revenue. Contact us to help prevent, detect and investigate potential abuse of your company's program.