Discounts Bring Orders, But Not Money

A promotion looks like a success — order volume goes up. But when the campaign ends, profit is flat or worse. Discounts often move revenue while cutting deep into margin.

What this usually means

A percentage discount cuts price directly, but costs stay the same. On a product with a 30% gross margin, a 20% discount can wipe out most of the profit on every sale.

Why it happens

The discount looks small compared to the retail price, not compared to the margin.
Owners assume higher volume will fix everything — but variable costs scale with volume too.
Platform commissions and payment fees are calculated after the discount.
Fixed costs stay the same, so extra orders do not help unless they add real margin.

Numbers to check

Gross margin per sale before and after the discount.
Break-even volume at the new price.
Total contribution margin for the campaign period, not just revenue.

Typical warning signs

Bigger sales weeks feel busier but do not grow the bank balance.
Repeat customers wait for the next discount before ordering.
Full-price sales become rare.

Simple fictional example

A shop sells a product for $50 with $35 in costs — a $15 margin. A 20% discount drops the price to $40, cutting margin to $5. Even if sales double, total profit drops from $15 × 100 = $1,500 to $5 × 200 = $1,000.

What to calculate next

Test discount scenarios in the Profitability calculator and check volume needed with the Break-even calculator.

Need to calculate this? Visit SME Finance Helper.