/ Finance

The Discount Erosion

Revenue is vanity. Margin is sanity.

A discount hits your profit far harder than the headline number, because it comes out of margin, not price. New margin = price x (1 - discount) - cost. On a €100 product that costs €40, the margin is €60. A 20% discount drops the price to €80, so the margin falls to €40. That is a 33% loss of profit, and you must sell 50% more units to earn the same money.

How it's calculated

Two numbers, in three plain steps:

  • New margin = price x (1 - discount) - cost. The discount is taken off the price first, then cost is subtracted.
  • Profit lost = (old margin - new margin) / old margin. How much of the original profit the discount eats.
  • Extra volume to break even = old margin / new margin - 1. The share of extra units you must sell to make the same total profit.

Worked examples

Product priced at €100, cost of goods €40 (a €60 margin).

Discount New margin Profit lost Volume to break even
10% €50 17% +20%
20% €40 33% +50%
30% €30 50% +100%
40% €20 67% +200%

How it works

Enter your Cost of Goods and Standard Price.

Set a proposed Discount %.

See the Profit Cliff (how much margin you lose).

Discover the Volume Trap (how many more units you must sell).

Why it matters

Sales teams love discounts because they close deals. Founders hate them because they kill profit.

Before you approve that "small" 20% off, see exactly how much harder your team has to work to make up for it.

The Math

New Margin = (Price × (1 - Discount)) - Cost
Volume Multiplier = Old Margin / New Margin

A 20% discount kills 33% of your profit.

To make the same money, you must sell 50% MORE units.

€60
Old Margin
€40
New Margin

Questions people ask

Why does a discount hurt profit more than the discount percentage?

Because the discount comes out of your margin, not your price. On a €100 product that costs €40, your margin is €60. A 20% discount drops the price to €80, so the margin falls to €40. That is a 33% cut in profit from a 20% cut in price. The thinner your margin to start with, the worse the gap.

How much extra volume do I need to sell to break even on a discount?

Take your old margin and divide it by your new margin, then subtract one. On the €100 / €40 example, a 20% discount leaves a €40 margin against the old €60, so 60 / 40 = 1.5. You need to sell 50% more units just to earn the same total profit as before the discount.

What discount makes me lose money on every sale?

Any discount that pushes the price below your cost of goods. If a €100 product costs €40, the price hits cost at a 60% discount (€40). Past that, every unit sells at a loss, and no amount of extra volume fixes it. Watch the margin figure, not just the discount slider.