Discounts feel cheap because the percentage is small. But a discount comes straight out of what’s left after your costs, so it costs far more of your profit than its headline number suggests.
Start with contribution
Contribution is what one sale leaves after the unit cost and variable fees:
contribution = price - unit cost - feesTake a mug that sells for $28 and costs $10. Ignoring fees, each sale contributes $18.
Work out what the discount takes
A 15% discount takes $4.20 off the price. Your unit cost doesn’t change, so all of that $4.20 comes out of contribution:
new price = $28.00 - $4.20 = $23.80
new contribution = $23.80 - $10.00 = $13.80The price fell by 15%, but contribution fell by 23%.
Work out the units you’d need
Say you sell 31 mugs a month. At full price that’s 31 × $18 = $558 of contribution. To earn the same at $13.80 a unit:
units to match = $558 / $13.80 = 40.4, so 41 unitsYou’d need 10 more sales, about a third more, just to end up where you started.
| Discount | Price | Contribution | Units to match 31 |
|---|---|---|---|
| None | $28.00 | $18.00 | 31 |
| 5% | $26.60 | $16.60 | 34 |
| 10% | $25.20 | $15.20 | 37 |
| 15% | $23.80 | $13.80 | 41 |
Thin margins make it much worse
Now take a planter that sells for $45 and contributes $6, a 13% margin. A 15% discount takes $6.75 off, which is more than the whole contribution. Every sale at that price loses money, and no amount of extra volume can fix it.
The lower your margin, the less room you have. This is why it’s worth running the numbers per product and not store-wide.
Add your ad cost
If it costs you $5 in ads to win an order, the mug at 15% off leaves $8.80 and not $13.80. Worth checking before you pay to promote a sale.
What the arithmetic can’t tell you
Units to match is a break-even line, not a forecast. It tells you what would have to happen, not whether it will. Whether a discount brings in 10 more sales depends on your product, your customers and your timing.
Also watch for sales you’d have made anyway. A customer who was going to pay $28 and paid $23.80 cost you $4.20 and brought nothing new.
Keep discounts honest
Start from the real current price. Raising a price just before a sale to make the discount look bigger misleads customers, and in many countries it’s against the law.
You can try these numbers with your own product in the demo.