A 20% discount does not normally reduce profit by 20%. It reduces revenue while many costs stay unchanged, so the percentage loss in profit can be much larger.
Revenue, profit, and margin
Revenue is the amount paid. Profit is revenue minus cost. Profit margin is profit divided by revenue. Keep these figures separate when planning a promotion.
Worked example
A product sells for ₹1,000 and costs ₹700. Normal profit is ₹300 and margin is 30%. After a 20% discount, the price is ₹800. Profit falls to ₹100 and the new margin is 12.5%. Revenue fell 20%, but profit fell 66.7%.
Break-even discount
Ignoring selling fees, maximum break-even discount equals (regular price − unit cost) ÷ regular price × 100. Here it is 30%. At that price there is no profit left for platform fees, returns, or fixed costs.
Include variable fees
Calculate commission, payment fees, fulfilment, and expected returns on the discounted transaction. Test the sale price with the Discount Calculator and verify margin changes with the Percentage Calculator.
Safer promotion checklist
- Set a minimum basket value.
- Use products with adequate contribution margin.
- Cap the discount amount.
- Measure incremental orders, not gross sales alone.
- Define the lowest acceptable final price.
Frequently asked questions
Is a 50% markup enough for a 50% discount?
No. Markup uses cost as its base; discount uses selling price.
Should advertising cost be included?
Include expected ad cost per converted order when paid acquisition drives the offer.
What is the safe sale price?
It is the price that covers all variable costs plus the contribution you require toward fixed costs and profit.
How many extra sales must the discount generate?
Compare contribution before and after the offer. In the example, contribution falls from ₹300 to ₹100 per unit. To earn the same ₹3,000 total contribution produced by 10 full-price sales, the discounted offer must produce 30 sales. That is three times the volume before advertising or extra fulfilment costs.
This volume test helps distinguish a promotion that merely raises order count from one that improves profit. Also check capacity, stock, customer-service load and repeat-purchase value. A discount can still be rational when it acquires profitable repeat customers, but that assumption should be measured rather than added automatically.