Friends and family discount abuse is an issue you may not always think about as a small business owner. Most small businesses oftentimes discount their services and products for their employees, friends, family, and even loyal customers. Although this may help build loyalty, if employees abuse this policy and break rules, there is high risk of fraud and revenue loss. Employees might discount a certain product if bribed with cash or even innocently extend the discount to someone claiming to know your business’ owner.

Offering a discount program or simply extending discounts on an informal basis is not a foreign business practice. However, you may want to consider cutting down on discounts. The easiest way to prevent friends and family discount abuse is to enact a total ban on discounts. But most businesses aren’t willing to go that far. Instead, consider these seven steps to help reduce the risk of fraud.

1. 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.
2. 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.”
3. 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.
4. 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.
5. 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.
6. 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.
7. Track Frequency & 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 friends and family discount abuse of your company’s program.