How discounts affect your profit (and how much more you need to sell)

Why discounts hurt more than they look

A discount comes entirely out of your profit, because your costs don't fall when the price does. If you make $16 on a $40 item that costs you $24, a 20% discount ($8) takes away half of that profit. To make the same money, you need to sell twice as many.

Sales needed = profit at full price ÷ profit at sale price

The numbers at different discounts

The thinner your margin, the faster discounts eat it. A product with a 25% margin loses all its profit at 25% off.

Fees soften the blow a little

Percentage fees, such as Etsy's 9.5% or a 2.9% card fee, are charged on the lower price, so they shrink slightly during a sale. Fixed costs like the product, label and packaging don't change at all. For a cautious estimate, treat your cost per sale as fixed.

When a discount is worth it

• Old or seasonal stock. Cash from a discounted sale beats an item that never sells.
• New customers who come back. If first-time buyers return at full price, the first sale is an investment. Check that they really do.
• Bigger orders. "15% off orders over $60" can raise profit per order if it gets buyers to add an item.
• Marketplace visibility. On some platforms, sales events bring extra traffic. Count the extra sales, not just the extra views.

Plan a sale in four steps

1. Work out your profit per item at full price, including fees and shipping.
2. Pick the discount and calculate the profit per item at the sale price.
3. Divide the two to see how many more sales you need.
4. Ask honestly whether the sale will bring that many extra orders. If not, use a smaller discount or a different offer.

Better alternatives to a blanket discount

• Free shipping thresholds instead of money off.
• Bundles at a small saving that still raise profit per order.
• Gifts with purchase that cost you less than their perceived value.

Frequently asked questions