Key takeaways
- Required sales increase = discount ÷ (margin − discount); use contribution margin, not just product margin.
- The required lift grows much faster than the discount: at a 50% margin, 10% off needs 25% more units and 30% off needs 150% more.
- Set a margin floor first; the maximum discount is 1 − (1 − margin) ÷ (1 − floor).
- Count only incremental sales: orders that would have happened at full price don't pay for the discount.
- Test a discount on part of the catalog with a fixed start and end before you roll it out.
Why does the depth of a discount matter so much?
Because every point of discount comes out of profit, not out of cost. A product with a 50% margin keeps half of its price as gross profit. Take 20% off and the profit falls from 50% of the original price to 30%, a 40% cut in profit per unit. The extra orders a sale brings in have to make up that gap before the sale earns anything.
Discounts also have costs that a single calculation doesn't show: customers who would have paid full price, purchases pulled forward from next month, and shoppers who learn to wait for the next sale. The math in this guide gives you the minimum a sale has to achieve. Treat it as a floor, not a target.
What is the break-even formula for a discount?
Required sales increase = discount % ÷ (margin % − discount %). It tells you how many more units you must sell at the sale price to earn the same gross profit you would have made at full price. Express the margin and the discount as percentages of the original price.
Here is where it comes from. At full price you keep the margin m on each unit. After a discount d, you keep m − d of the original price per unit. To earn the same total profit, the number of units has to rise by a factor of m ÷ (m − d), which is an increase of d ÷ (m − d).
A worked example: a $50 product costs $25, a 50% margin, and normally sells 100 units a month for $2,500 of gross profit. At 20% off it sells for $40 and earns $15 per unit. To make $2,500 again you need 2,500 ÷ 15 = 166.7 units, so about 167 units, or 66.7% more than usual. The formula gives the same answer: 0.20 ÷ (0.50 − 0.20) = 0.667.
How many more units do you need to sell? A break-even table
The table applies the formula to common margins and discounts. Read across your margin row to see the extra unit sales each discount needs just to break even on gross profit.
Two patterns stand out. First, the required lift accelerates: at a 40% margin, going from 20% off to 30% off triples the required increase, from 100% to 300%. Second, high-margin products can carry deeper discounts: 30% off needs 100% more units at a 60% margin, but 300% more at a 40% margin.
| Margin | 10% off | 15% off | 20% off | 25% off | 30% off | 40% off |
|---|---|---|---|---|---|---|
| 30% | +50% | +100% | +200% | +500% | No profit left | No profit left |
| 40% | +33.3% | +60% | +100% | +166.7% | +300% | No profit left |
| 50% | +25% | +42.9% | +66.7% | +100% | +150% | +400% |
| 60% | +20% | +33.3% | +50% | +71.4% | +100% | +200% |
| 70% | +16.7% | +27.3% | +40% | +55.6% | +75% | +133.3% |
Should you use gross margin or contribution margin?
Use contribution margin whenever you can. Gross margin subtracts only the product cost. Contribution margin also subtracts the costs that come with every order, such as shipping you pay, packaging and payment fees, so it gives a more realistic break-even.
Take the same $50 product with a $25 cost and add a hypothetical $5 of shipping and fees per order, treated as a fixed amount for simplicity. The contribution margin is ($50 − $25 − $5) ÷ $50 = 40%, not 50%. At 20% off, each unit now contributes $40 − $25 − $5 = $10 instead of $20, so you need 100% more units to break even, not 66.7%. The margin calculator helps you get these numbers right per product, and the margin vs markup guide explains the formulas behind them.
If the discount is equal to or larger than your margin, no amount of extra volume rescues it: every unit sells at or below cost. A 40% discount on a 40% margin product only makes sense for stock you can't sell any other way.
How do you set a maximum discount from a margin floor?
Pick the lowest margin you are willing to accept during a sale, then compute the deepest discount that keeps you above it: maximum discount = 1 − (1 − margin) ÷ (1 − floor). For a product with a 60% margin and a 35% floor, that is 1 − 0.40 ÷ 0.65 = 38.5%. Anything deeper takes the sale price below your floor.
You can also work from the lift you expect. If you believe a promotion will raise unit sales by L, the deepest discount that still breaks even is margin × L ÷ (1 + L). With a 50% margin and an expected 30% lift, that is 0.50 × 0.30 ÷ 1.30 = 11.5%. So if your past promotions lifted unit sales by about 30%, a 25% discount on a 50% margin product, which needs 100% more units, will lose gross profit however busy the sale feels.
To run these checks on a real product, enter its price, cost and discount in the discount calculator, which shows the margin after the discount and the break-even volume.
Percent off or dollars off: which sounds bigger?
The math is identical, but the framing isn't. A rule of thumb many marketers use: for items under $100, a percentage usually looks bigger; above $100, the dollar amount usually does. 15% off a $40 item is $6, which sounds small as a dollar figure, while 15% off a $400 item is $60, which sounds larger than "15%".
Whichever you show, make the saving real and meaningful. The US Federal Trade Commission's Guides Against Deceptive Pricing say the reduction behind a "sale" should not be so small as to be meaningless, and give the example that claiming "Reduced to $9.99" from a $10 former price misleads shoppers. Token discounts rarely justify the work of running a promotion.
Which discount fits which goal?
Match the depth to the job the sale has to do. The percentages in the table are examples to show the shape of each approach, not benchmarks; your own margins decide the real numbers.
| Goal | How to set the depth | What to measure |
|---|---|---|
| Clear old or seasonal stock | Step down in stages, for example 20%, then 40%, then 60%, and stop when the stock is gone | Units cleared and cash recovered, not margin |
| Seasonal event such as Black Friday or Ramadan | Start from the margin floor of each product group and discount groups differently | Incremental gross profit vs a comparable normal period |
| Win first-time buyers | A modest discount on entry products rather than the whole catalog | New customers and whether they buy again |
| Move a slow product | A small discount for a short window | Unit lift compared with the break-even table |
| Repeating promotion (weekend, payday) | Keep the depth constant so each window can be compared with the last | Profit per window and sales just before and after it |
How do you test a discount before rolling it out?
Run the discount on part of your catalog for a fixed window, and decide in advance what result counts as success. The break-even table gives you the bar: if a 20% discount on a 50% margin group needs 66.7% more units, write that down before the test starts and don't move it afterward.
- Pick a test group of similar products, and a comparable control group that stays at full price.
- Record the baseline: units, revenue and gross profit for both groups over a recent comparable period.
- Set the discount, the start and the end. Change one thing at a time, and don't run extra ads or emails for the test group only.
- Run the sale for the full window, then return prices to normal on time.
- Compare the change in gross profit in the test group with the change in the control group, and check the weeks after the sale for a dip.
- Keep, change or drop the discount based on the criterion you set before the test.
How can Sale Scheduler help you run a discount test?
Sale Scheduler by SalePilot handles the mechanical side of a test: the right products, the right prices and an end that happens on time. You can target collections, products, specific variants or one advanced condition, such as a product tag or vendor, and exclude one type of item, so the test group stays separate from the control group.
With Schedule start and end, the sale starts and ends automatically at the times you set, processed every minute, so a sale may start within about one minute of the scheduled time. Previous prices are restored automatically at the end. To repeat the same discount, recurring sales run it weekly on the days you choose or every set number of days, and you can pause, resume or stop the series at any time. To change a recurring sale's pricing, you create a new one.