How to use the discount impact on profit calculator
- Enter your current price and your cost per unit. The cost must be below the price.
- Enter the discount as a percent off the current price.
- Read how many extra units you must sell, as a percent more than today, to earn the same total profit as before the discount.
- Optionally enter the units you sell now in the advanced options to see the target in whole units.
Formula
Profit per unit now = price - cost
Price after discount = price x (1 - discount)
Profit per unit after = price after discount - cost
Extra units needed = old profit per unit / new profit per unit - 1
With a margin m (profit as a fraction of price) and a discount d (as a fraction of price), the extra volume needed is d / (m - d). It grows quickly as the discount approaches the margin.
A 10% discount at a 40% margin
A product sells for $100 and costs $60, so profit is $40 per unit, a 40% margin. A 10% discount drops the price to $90, so profit falls to $30 per unit.
To earn the same total profit you need $40 / $30 = 1.3333 times as many units, which is 33.33% more. If you sell 300 units now, you would need 400 at the discounted price, and the profit is $12,000 either way.
Why a small discount needs a large volume jump
A discount comes straight out of the profit on each unit, not out of revenue in general. When the margin is thin, a modest discount removes a large share of the profit per unit, so you have to sell many more to make up the difference. At a 40% margin, a 10% discount takes a quarter of the unit profit, and the extra volume needed is a third.
If the discount is as large as the margin, the discounted price only covers the cost and no volume is enough. The tool says so rather than showing an impossible number.
What the calculation leaves out
This keeps total profit equal. It does not predict whether a discount will actually bring in the extra sales. It assumes your cost per unit stays the same and that you can supply the extra units. It also ignores fixed costs, returns, the effect on later full price sales and any change in the customers you attract.
To set a floor for discounts instead, use the discount to keep margin calculator. For the reverse problem of covering a cost rise, see the price increase calculator.
Assumptions and limits
- Cost per unit is the same before and after the discount.
- The goal is the same total profit in dollars, not the same revenue.
- The extra units can be sold and supplied at the same cost.
- Fixed costs, returns and customer behavior are not modeled.
Frequently asked questions
How many more units do I need to sell after a discount?
Divide your old profit per unit by your new profit per unit and subtract one. At a $40 profit that falls to $30 after a discount, you need 33.33% more units.
Why does a discount hurt more when the margin is small?
The discount is taken from the profit on every unit. The smaller that profit is to begin with, the bigger the share the discount removes, and the more extra volume it takes to recover.
What happens when the discount is bigger than the margin?
The discounted price is at or below your cost, so each unit earns nothing or loses money. No amount of extra volume brings back the old profit, and the tool reports that.
Does this tell me whether to run a promotion?
No. It tells you how much extra volume a discount would need. Whether you can reach that volume depends on your market, which the calculation cannot know.