Discount calculator
Every retailer computes the sale price; few compute what survives of the margin. This one shows both, which is why it might save you from your own promotion.
The third field is the one retailers skip: a 25% sale on a 40% margin item leaves 20% — a 25% sale on a 25% margin item pays customers to shop.
What a discount costs in margin
A discount comes entirely out of profit, which is why the margin effect is always larger than the discount looks. An item costing $60 and selling at $100 carries a 40% margin; discount it 10% to $90 and the margin falls to 33.3% — a 10% price cut removed a sixth of the profit.
At a 20% discount the same item makes $20 instead of $40: half the profit for a fifth off the price.
How much more you must sell
To stand still after a discount, the volume increase needed is larger than most people assume. With a 40% starting margin, a 10% discount needs roughly 33% more units sold just to make the same gross profit.
That arithmetic is the argument for discounting deliberately — to clear dated stock or win an account worth having — rather than as a reflex.
Frequently asked questions
How deep can I discount?
To the point where remaining margin still covers the sale's share of fixed costs. A discount that sells at a loss is advertising — budget it as advertising, deliberately.
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