Before you run that sale
How much more do you have to sell to make a discount pay for itself?
The honest answer is usually a lot more than it feels like, because the discount comes out of the margin and not out of the price.
How much extra do I need to sell to break even on a discount?
A discount comes straight out of your margin, so the volume you need to stand still is your current margin divided by what is left of it after the discount. At a 40 per cent margin, taking 20 per cent off leaves 20 per cent, and 40 divided by 20 is 2, so you need to sell twice as much to make the same gross profit. That is the number almost nobody guesses correctly, because the instinct is that a 20 per cent discount needs about 20 per cent more sales. The thinner your margin, the worse it gets, and once the discount reaches your margin no amount of extra volume recovers it, because every unit is then sold at or below cost.
Your result
Fill in the fields above and the answer appears here.
No amount of extra volume recovers this discount
The discount is at or above your margin, so every unit sells at or below what it cost you. Selling more of them loses more money, not less. Either the discount has to be smaller than , or the margin has to be bigger before the sale runs.
Extra volume needed to make the same gross profit
| Which means selling this many times as much | |
|---|---|
| Your margin after the discount | |
| Units you sell now | |
| Units you would need at the discounted price | |
| Price after the discount | |
| Gross profit per unit after the discount |
How this is worked out
The honest answer is usually a lot more than it feels like, because the discount comes out of the margin and not out of the price.
- A discount is a percentage off the price, and the margin is also a percentage of the price, so the discount comes off the margin one for one. If the margin was m and the discount is x, the margin left is m minus x, and the volume you need is m divided by m minus x. Subtract one from that and you have the extra volume as a percentage.
A worked example
At a 40 per cent margin, a 20 per cent discount leaves 20 per cent. Divide 40 by 20 and you get 2, so you need to sell twice as much, which is 100 per cent more volume, just to end up with the gross profit you already had.
What this assumes
- This is gross profit only. It does not count the cost of running the promotion, the customers who would have paid full price and now will not, or what a discount does to what people expect to pay next time.
- It assumes your cost per unit does not change with volume. If selling more gets you a better price from your supplier, or costs you more in delivery or overtime, the real answer moves.
- Both the margin and the discount are percentages of the SELLING PRICE, not of cost. A margin quoted as a markup on cost is a different number and will give you a wrong answer here.
Questions about this calculator
Short answers, and none of them hedge. If yours is not here, ask us on the contact page.
Why is the answer so much bigger than the discount?
Because the discount comes out of the margin, and the margin is a fraction of the price. A 20 per cent discount on a 40 per cent margin does not cost you 20 per cent of your profit, it costs you half of it, so you need double the volume. The thinner the margin, the more dramatic it gets.
What is the difference between margin and markup here?
Margin is profit as a percentage of the price you sell at. Markup is profit as a percentage of what it cost you. A 50 per cent markup is a 33 per cent margin. This calculator wants the margin, and putting a markup in will make the discount look more affordable than it is.
Does this account for customers who would have bought anyway?
No, and that is the biggest thing it leaves out. Everyone who would have paid full price and now pays the discounted price is pure lost margin, and the extra volume has to cover them too. Treat the number here as the floor, not the target.
What if the discount is bigger than my margin?
Then there is no volume that recovers it, and the calculator says so rather than printing a number. Every unit is being sold at or below what it cost you, so selling more loses more. That can still be a deliberate decision, to clear stock or win a customer, but it is not one that pays for itself.
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