Common Questions
Frequently Asked Questions
How do I calculate the true profit impact of a discount?
Take your selling price minus COGS to find profit per unit. Apply the discount to the selling price, then subtract COGS again to find the new profit per unit. Multiply both by the units sold to compare totals. The difference is the profit a discount costs you, before factoring in cannibalization or extra ad spend.
Why does a 20% discount cut profit by more than 20%?
Because the discount comes out of your margin, not your revenue. If a $50 product costs $20 to make, your profit per unit is $30. A 20% discount drops the price to $40, which leaves only $20 of profit per unit, a 33% drop in profit. The lower your starting margin, the more brutal the math becomes.
How many extra units do I need to sell to break even on a discount?
Divide your original total profit by your new profit per unit at the discounted price. The result is how many units you need to sell at the new price to make the same profit. Subtract your current unit volume to see how many additional units you need - that is your required lift. If the required lift is over 50%, the promotion is rarely worth it.
What is a healthy discount level for ecommerce?
There is no universal answer, but most ecommerce brands with 50-60% gross margins can sustain discounts up to about 15% before the math gets dangerous. Brands with thinner margins (under 40% gross) should treat any discount above 10% as a strategic decision, not a default. The cleanest test is whether the required volume lift is realistic for your channel mix.
Should I include cannibalization in my discount calculations?
Yes - and most brands do not. Cannibalization is the share of discount buyers who would have purchased at full price anyway. If 60% of your sale orders are cannibalized, your real lift requirement is roughly 2.5x the calculator output. The only way to know your true cannibalization rate is to compare new customer rates and incremental order volume during a promo against a non-promo control period.
Why are discounts especially dangerous for low-margin products?
Because there is less room before the discount eats your entire margin. A product with a 30% gross margin loses everything at a 30% discount. A product with a 70% gross margin can absorb the same discount and still keep half its profit per unit. Always run the math before promoting low-margin SKUs.