Sample issue. Hypothetical worked example.

A 10% discount can require 50% more sales

A discount can look small on the price tag and much larger in the economics. Before calling a promotion a success, it helps to work out how much additional business it needs to create.

Let's use a deliberately simple example. We're looking at contribution per sale: selling price minus variable cost, before fixed overhead and other expenses.

3 numbers

• $100: The normal selling price.
• $70: The variable cost to deliver each sale.
• 10%: The proposed discount.

At the normal price, each sale contributes $30 toward fixed costs and whatever is left after them. With the discount, the selling price becomes $90 and the contribution falls to $20.

The customer receives a 10% discount. Your contribution per sale falls by one-third.

Suppose you normally make 50 sales in the relevant period. At $30 each, that produces $1,500 of contribution.

At $20 each, you need 75 sales to produce the same $1,500. That is 50% more sales just to stand still on total contribution.

Assumes variable cost per sale stays at $70 and the extra volume does not trigger additional fixed costs.

That does not mean discounts are always a bad decision. A promotion might fill otherwise unused capacity, change customer behavior, or lead to profitable repeat purchases.

But those benefits need to be examined, not used as a convenient explanation after the fact. If additional volume requires overtime or another delivery resource, this simple model needs another line.

2 questions

• Demand: Can this promotion realistically create 50% more sales in the period, rather than discounting sales you would have made anyway?
• Delivery: Can you fulfill the additional volume at the same assumed cost without damaging service or displacing better work?

1 move

Before approving the next promotion, calculate the sales volume required to preserve total contribution. Then put that figure beside the expected demand increase and the capacity needed to fulfill it. If discounted contribution is zero or negative, this volume break-even calculation cannot justify the promotion on its own.

More sales may be the right goal. Just make sure you know what those sales leave behind.

Steve