Discount and Profit Calculator
A twenty per cent discount rarely costs twenty per cent. It comes out of contribution, not price, so the margin damage is usually two or three times what it looks like — and the extra volume needed to cover it is larger than almost anyone guesses. This prices the discount before you run it.
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The question is never what the discount costs. It is how much more you have to sell to get it back.
- The calculator
What the discount costs, and what it has to earn back
Six inputs for one product or one promotion. The last one is your honest guess at the uplift — everything else is on your P&L already.
Contribution per unit is price minus landed cost minus variable cost. A discount comes off the price but none of the costs, so it lands entirely on contribution — which is why a 20% discount on a 45% margin removes roughly a third of the profit per unit. Extra units to stand still is full-price contribution divided by discounted contribution, less one. Deepest discount your uplift supports solves the same equation backwards: the discount at which your expected extra volume exactly replaces the margin given away. Fixed promotion costs and any cannibalisation of customers who would have paid full price are not included — both make the real answer worse.
- Reading it
Discounts come out of contribution, not price
That one sentence explains why almost every promotion underperforms the plan it was approved on.
At the defaults the product sells for $60 against $33 of landed cost and variable cost, so each sale contributes $27. Take 20% off and the price falls by $12 — but the costs do not move, so contribution falls from $27 to $15. That is a 44% cut in profit per unit for a 20% cut in price, and it is the reason a promotion that felt modest in the meeting shows up as a hole in the month.
The volume required to repair that is the part nobody estimates well. Standing still needs 80% more units, not 20%. Most discounts do not move volume anywhere near that much, which is why the honest reason to run one is usually something other than profit this month: clearing stock before it ages, winning a first order from a customer you intend to keep, or defending a position over a trading weekend. Those are all defensible. They are just not the same as the promotion paying for itself.
- Decide what the discount is buying before deciding how deep it goes
- Run the numbers per product, never on a blended catalogue margin
- Measure the uplift against a comparable period, not against the forecast
- Getting it wrong
Four ways a promotion quietly loses money
Each of these is invisible in the revenue line and obvious in the contribution line.
Confusing discount off price with margin lost
Twenty per cent off the price is almost never twenty per cent off the profit. On a 45% margin it removes about 44% of the contribution per unit, and on a thin margin it can remove all of it.
Discounting people who would have paid full price
A sitewide code goes to everyone, including the customers already in the checkout. Most promotions lose more to that than they gain in new demand, and a targeted code costs a fraction as much.
Using a blended catalogue margin
Across a range with a three-to-one margin spread, one discount rate produces one profitable half and one unprofitable half. Price the promotion per product, or at least per margin tier.
Forgetting returns on discounted stock
Promotional orders are returned more often in most categories, and a returned discounted unit costs the outbound delivery and the payment fee against a contribution that was already smaller.
Our profit margin calculator works out the contribution figure this tool asks for, including the returns model — run that first if you are not sure what a full-price unit actually leaves behind.
- Questions
Discount and profit FAQs
The questions this calculator usually raises.
How do I work out profit after a discount?
Take the discounted price, subtract the landed cost of goods and every variable cost per unit, and what is left is the contribution that sale produces. Multiply by the units you expect to sell. The mistake is subtracting the discount from the margin percentage instead of from the price — the discount reduces revenue while every cost stays exactly where it was, so it lands entirely on contribution.
How much extra volume does a discount need?
More than people expect. The formula is full-price contribution divided by discounted contribution, minus one. At the defaults here that is 80% more units to break even on a 20% discount. As a rule of thumb, the thinner the starting margin the steeper the required uplift, and below about a 25% margin most double-digit discounts cannot be rescued by volume at all.
What discount can I actually afford?
The deepest discount your uplift supports tile answers exactly that: it solves for the discount at which the extra volume you entered exactly replaces the margin you gave away. If that figure comes back below the discount you were planning, the promotion loses money at your own uplift estimate — before any fixed costs.
Should I use gross margin or contribution margin?
Contribution, every time. Gross margin stops at cost of goods and ignores payment fees, pick and pack and delivery, all of which you still pay on a discounted order. Using gross margin will tell you a promotion is affordable when it is not, and the gap widens as the discount deepens.
Does this handle buy-one-get-one or free shipping offers?
Indirectly, and usefully. A BOGO is a 50% discount across two units — enter it that way. Free shipping is not a discount at all: leave the price alone and move the delivery cost into the variable cost line, which shows you the same contribution damage without pretending the customer paid less.
What about the customers who would have bought anyway?
This calculator deliberately does not model that, because nobody can measure it without a holdout group. It matters a great deal though: if half your promotional volume would have converted at full price, the real result is materially worse than the profit change shown here. Treat that tile as the optimistic case.
- Next
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