Cashback vs discounts. It’s a critical promotional question every ecommerce seller faces as Thanksgiving, Black Friday, and Cyber Monday are right around the corner.
So, which strategy will actually win you more customers (and profit) this holiday season?
Should you slash prices with aggressive discounts to drive immediate sales, or offer cashback rewards to build customer loyalty that extends into 2026?
The truth is, it does not work like one size fits all. The "better" strategy depends entirely on your business goals. Are you clearing excess inventory, attracting first-time buyers, protecting your premium brand image, or building long-term customer loyalty?
In this guide, we'll break down the pros and cons of both cashback vs discount strategies for the 2025 holiday season, plus show you how to measure the real impact on your bottom line.
We’ll also show you how to track your true profitability with Webgility and finally see which strategy, cashback or discounts, delivers the best ROI (and not just drive sales) for your 2025 holiday campaigns.
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Key takeaways:
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A discount is a direct and immediate reduction in the price of a product or service. It is applied at the point of sale, meaning the customer pays a lower amount upfront before completing their purchase.
Common types of discounts include:
The psychology behind discounts and why they work:
Discounts tap into the powerful principle of immediate reward. Customers see the lower price in their cart right now, feel smart for grabbing a bargain, and are motivated to complete their purchase instantly. During the holiday season, when shoppers are primed for deals and competition is fierce, this urgency effect becomes even stronger.
According to consumer psychology research, urgency + visibility = conversion. Clear, time-limited discounts trigger FOMO (Fear of Missing Out), pushing hesitant shoppers toward that “Buy Now” button.
When strategically implemented, discounts deliver significant short-term gains:
Discounts are unmatched for moving seasonal inventory fast. If you're sitting on 500 units of holiday-themed products that won't sell in January, an aggressive discount is your best friend.
Time-limited offers ("48-Hour Flash Sale!") create FOMO that gets customers clicking "Buy Now."
Discounts are straightforward and require little explanation. Whether it’s “20% off” or “$10 off your next purchase,” customers immediately understand the value they’re getting, making it easy to convert window shoppers into buyers.
Even though individual margins are reduced, discounts can significantly boost total revenue by increasing sales volume. A “50% off” promotion may drive enough volume to offset the smaller profit margin on each product sold.
Offering discounts, especially on first-time orders (e.g., “25% off your first purchase”), can be an effective strategy to attract new customers. This creates a solid opportunity for future sales, as first-time buyers are more likely to return if they had a positive experience and see value in your products.
Discounts can make your products more attractive in a crowded marketplace, especially during the holiday season. By offering a better deal than competitors, you can capture the attention of price-conscious customers and increase your market share
Discounts often generate excitement and buzz, especially if tied to events or limited-time promotions. This can increase brand visibility, social media engagement, and word-of-mouth marketing, helping your business reach new audiences
While discounts can drive impressive short-term results, they come with significant trade-offs that can impact your long-term profitability and brand health:
Offering discounts directly reduces your profit margins. For every sale, you’re making less on each product, which could harm your overall profitability, especially if you rely on high margins to sustain your business.
Example calculation:
For every discounted sale, you're making 75% less profit than at full price. If you're running on thin margins to begin with, heavy discounting can quickly turn revenue gains into actual losses.
Discounts alone don't drive traffic, you still need to market them. During BFCM, customer acquisition costs spike because every retailer is competing for the same shoppers. It means you need to pay significantly more to advertise your discount. This further erodes profitability.
If you're always on sale, customers will train themselves to never buy at full price. This creates a dangerous "discount culture" where your brand becomes associated with being cheap rather than valuable. Premium brands especially need to be careful about this
Heavy discounts often attract one-time buyers who have zero loyalty to your brand. They're simply chasing the lowest price and will disappear the moment your competitor offers a better deal. These customers hurt your Customer Lifetime Value (CLV) metrics without contributing to sustainable growth.
Running promotions without understanding their impact on profitability is risky. You might be generating impressive revenue numbers while actually losing money on each sale when factoring in COGS, marketing costs, and fulfillment. This is why tracking real profitability at the SKU level becomes critical during promotional periods.
Webgility solves this by automatically syncing every sale from Shopify, Amazon, and TikTok Shop into QuickBooks or Xero with SKU-level profit tracking. You'll know which discounts are actually profitable during your promotion, not weeks later when you're analyzing spreadsheets.
Bonus read: How to sell more this Black Friday Cyber Monday: Killer Bundling Tips
Cashback is a "long-game" strategy. Customers pay full price, then receive a percentage of that purchase back (as credit, points, or money) to be used on a future order, turning a one-time holiday sale into a future relationship.
Common types of cashbacks:
The psychological hook: Delayed gratification. This strategy feels like "earning" money or making an investment in a future purchase. It builds a "switching cost", the customer now has a balance in their wallet with you, making them far more likely to return to your store instead of a competitor's.
While discounts trigger instant gratification, cashbacks tap into delayed reward psychology. Customers feel they’re earning money, not just saving it. It also observed that most people experience two moments of happiness with cashback: once at purchase and again at redemption, creating a stronger positive association with your brand.
Here’s why cashback works for ecommerce brands:
You sell products at full price, maintaining their perceived value. There's no "On Sale" stigma that can make your brand look desperate or cheap. Instead, cashback positions as a reward for loyalty, which feels premium and exclusive, especially important for high-end brands.
Since cashback doesn’t reduce the initial sale price, your margins remain intact. Plus, not every customer redeems their cashback (known as breakage), further improving your effective profit.
Cashback creates a financial incentive for customers to return. When someone has $15-20 sitting in their account, they're significantly more likely to come back and make another purchase rather than shopping with competitors. This retention is automatic and built into the promotion itself.
| The data on building customer loyalty with cashback will amaze you. As per stats, 83% of consumers report that belonging to a loyalty program influences their decision to buy again from a brand. |
Cashback has a stronger positive impact. Psychologically, a discount is an avoided loss, while cashback is a gain. Earning a reward feels more memorable and creates two moments of happiness (at purchase and redemption), strengthening your brand image.
Cashback naturally attracts a different customer profile than discounts. While heavy discounts draw price-sensitive, one-time buyers, cashback appeals to customers who value your products enough to pay full price and are willing to invest in a future relationship. This will help you stand out from competitors during the holiday rush.
Bonus read: Top Post-BFCM Customer Retention Strategies Every Store Must Try
While cashback programs strengthen customer relationships, they also come with operational challenges and slower results compared to direct discounts:
Cashback doesn’t create the same urgency as a flash sale or “50% Off Today” deal. Since the reward is delayed, customers may postpone purchases, making it less effective for quick inventory turnover or short-term revenue spikes.
Implementing cashback requires a reliable system to track, credit, and redeem rewards, such as a loyalty program, digital wallet, or marketing automation tool. Without proper setup, managing balances and redemptions can become time-consuming and prone to errors that frustrate customers and damage trust..
Because customers redeem cashback later, the financial return is spread over time. This can make campaign performance harder to measure if you don’t have an effective ecommerce accounting platform in place.
Bar chart showing the biggest general challenges firms faced in 2023.
According to a report, 22.5% faced challenges in staying profitable, and one of the major factors can be promotional offers and the inability to calculate their true margins. That’s why the “cashback vs discount” debate is really a question of acquisition vs retention, short-term sales vs long-term profitability:
| Metric | Discounts (The Instant Win) | Cashback (The Future Reward) |
| Primary Goal | Acquisition & Volume | Retention & Loyalty |
| Best Use Case | Inventory clearance, new customer acquisition | Customer retention, brand loyalty |
| Immediate Sales Lift | High (Creates strong urgency) | Moderate (Lower urgency) |
| Profit Margin Impact | High (Directly reduces initial profit) | Controlled (Protects initial margin) |
| Repeat Purchase Rate | Low to Moderate | High (The core purpose) |
| Customer Lifetime Value (CLV) | Low to Moderate | High (Builds repeat habits) |
| Refund/Return Rate | Higher (Encourages impulse buys) | Lower (Full-price investment) |
| Brand Perception | Risk of devaluation | Premium/reward-based |
Bar chart of US retail ecommerce holiday season sales from 2020 to 2024, in billions.
With consumers spending over $241.4 billion last holiday season, and projections pointing toward $1 trillion in the near future, understanding which strategy actually drives profitability has never been more critical. But here's the problem most multichannel sellers face: You're tracking revenue, not profitability.
Your Shopify dashboard shows $50,000 in Thanksgiving, Black Friday, and Cyber Monday sales. Impressive, right? But after factoring in your 20% discount, platform fees, payment processing, shipping costs, and elevated ad spend during peak season, what's your actual profit? Was it the discount strategy that drove those sales, or would cashback have been more profitable in the long run?
Most sellers can't answer these questions because they're missing critical data:
Without answers to these questions, you're making promotional decisions based on gut feeling and vanity metrics, not data that drives sustainable profitability.
This is exactly where Webgility becomes essential.
Webgility automatically syncs every transaction from all your sales channels: Shopify, Amazon, TikTok Shop, and POS systems directly into QuickBooks or Xero. But it goes far beyond basic bookkeeping. It tracks:
Let's look at a real-world scenario, similar to what we see with Webgility customers. Imagine a premium home goods retailer running two promotions during their 2024 holiday season:
Without an integrated system, it's hard to see the true winner. But using Webgility, they can connect their ecommerce store with the accounting software to see the full picture:
The data, made clear by Webgility, showed them that discounts were great for acquisition, but cashback was the clear winner for profitability and loyalty. Now, this holiday season for 2025, they are confidently using a hybrid approach, armed with the data to know exactly why and when to use each one.
Bar chart showing factors affecting buying decisions during BFCM, led by Free Shipping (48%).
| Your Business Goal | Recommended Strategy | Why It Works |
| Clear excess inventory fast | Discounts | Creates urgency, drives impulse purchases, and moves seasonal stock quickly before it becomes obsolete. |
| Acquire new customers quickly | Discounts (primary) Cashbacks (secondary) | Discounts lower upfront friction and are universally understood. Cashbacks like "Get $20 back on your first order" can differentiate you from discount-heavy competitors and position first purchase as an investment. |
| Increase Average Order Value (AOV) | Both |
Discounts: "Spend $100, Get 20% Off" boosts immediate cart size. Cashbacks: "Spend $100, Earn $20 Back" increases AOV now and ensures a second purchase later. |
| Build customer loyalty for 2026 | Cashbacks | Creates switching cost through unredeemed balances, encouraging repeat purchases and 3x higher Customer Lifetime Value (CLV) compared to discount-driven buyers. |
| Protect premium brand image | Cashbacks | Positions value as a reward for loyalty, not a price markdown. Maintains full-price positioning and avoids "always on sale" perception. |
| Maximize profit margins | Cashbacks | Maintains full-price sales with intact margins. Plus, 10-20% breakage (unredeemed cashback) further improves profitability. |
| Hit immediate revenue targets | Discounts | Drives instant conversions with "act now" urgency. Best for end-of-quarter pushes or meeting short-term sales goals during compressed holiday windows |
| Lower customer acquisition cost (CAC) | Cashbacks (with transferable rewards) | Cashbacks (with transferable rewards) When customers share cashback as gift cards with friends/family, you gain organic word-of-mouth acquisition without elevated ad spend during peak season. |
| Filter for quality, loyal customers | Cashbacks | Attracts customers willing to pay full price and invest in future relationships, not bargain hunters who disappear after one purchase. |
| Stand out in a discount-saturated market | Cashbacks | Differentiates your offer when every competitor is running "% off" promotions. Feels more premium and memorable than generic discounts. |
The most profitable holiday brands don’t assume, they test. Using Webgility, you can compare how each promotion affects your:
✔ Profit margins
✔ Sales velocity
✔ Customer lifetime value
✔ Repeat purchase rate
✔ Marketplace fees & payout patterns
So you always know exactly which strategy, cashback or discounts, delivers the best ROI for your business.
Here's what the data reveals: The most profitable ecommerce businesses don't choose between cashback vs discount; they strategically deploy both.
The winner of the cashback vs discount battle isn't decided by industry trends or best practices. It's decided by your specific business goals, your customer data, and most importantly, your ability to measure what's actually working.
Use discounts during Black Friday/Cyber Monday to acquire customers and clear inventory. Then shift to cashback in December-January to retain those buyers and protect margins heading into 2026.
The non-negotiable thing is to track profitability, not just revenue. You need to measure SKU-level margins, true CAC, and repeat purchase rates to know what's actually working.
A tool like Webgility automatically connects your ecommerce stores and marketplaces to your accounting system, giving you instant visibility into true margins, ROI, and the long-term impact of every promotion. You’ll know exactly which strategy is driving sustainable profit this Thanksgiving, BFCM, and the entire holiday season, so you don’t just count on the sales spike.
Ready to build a more profitable holiday plan? Download our guide to automated ecommerce ops for advanced promotional strategies!
Neither is universally better; discounts drive instant sales, while cashbacks build loyalty and repeat purchases. The right choice depends on your business goals.
Cashback builds customer loyalty by giving shoppers a reason to return to your store, and it protects your brand's premium image by selling the product at its full price.
A promotion is the overall campaign or strategic event (like a Holiday Sale). A discount is a specific tactic within that promotion, such as "20% off" or "BOGO."