Is offering a discount profitable?
A discount pays off only if sales growth makes up for contribution margin lost per unit.
Calculate contribution at the discounted price. Required volume increase = old contribution ÷ new contribution. If new contribution is zero or negative, volume growth cannot preserve profit.
What to consider
- A discount cuts contribution per unit, so volume must rise enough to offset the loss.
- A high-margin product can absorb a discount more easily.
- Returns and cannibalized sales are outside the base formula.
What stays the same across scenarios
- Price, variable cost per unit, and discount.
- Contribution before discount is the comparison baseline.
What changes or is assumed
- Variable cost per unit does not change as volume grows.
- Additional sales are assumed not to cannibalize existing sales.
Calculation steps
- Calculate contribution before and after the discount.
- Divide old contribution by new contribution.
- Review the required percentage increase in volume.
Build the calculation in a calculator
Illustrative example: Open with an example: price ₽5,000, variable cost ₽3,000, discount 10%
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Editorial team: MARKMA Editorial Team. Reviewed: .