How much more to sell to make up for a discount
A discount looks small on the price tag but large on the bottom line. The product cost does not change when you discount, so every dollar off comes straight out of the contribution margin, the money that pays fixed costs and forms profit.
The formula
Volume needed = current volume × current margin per unit ÷ new margin per unit
The margin per unit is price × (1 − taxes, commissions and fees as % of price) − unit cost. The same formula, applied to a price increase, shows how many sales you can lose and still earn the same.
Example
| Item | Today | With 10% off |
|---|---|---|
| Price | $100 | $90 |
| Unit cost | $55 | $55 |
| Fees (10% of price) | $10 | $9 |
| Margin per unit | $35 | $26 |
| Sales needed for the same profit | 1,000 | 1,347 (+35%) |
When a discount makes sense
To win customers who will come back at full price, to clear stock that is not moving, to fill idle capacity or to sell high-margin add-ons. Giving a discount to customers who would have bought anyway only lowers profit.
Price increases
The math works in your favor: with a 35% margin, a 10% price increase lets you lose about 22% of sales before profit falls. Thin-margin businesses usually gain more from a well-communicated increase than from a promotion.