A discount comes straight out of the margin on every order that uses it. Before running one, it helps to know how many extra orders it needs just to stand still.
An illustrative product.
The numbers below are an example, not a benchmark. Swap in your own.
- Price: $50
- Product cost (landed): $20
- Shipping and fulfillment you pay: $8
- Payment processing, roughly 3% of the price: $1.50
Contribution per order before marketing: $50 − $20 − $8 − $1.50 = $20.50.
Now take 20% off.
The price drops to $40. Product cost and fulfillment do not change. Processing falls slightly to $1.20.
Contribution per order: $40 − $20 − $8 − $1.20 = $10.80.
A 20% reduction in price cut contribution per order by almost half. That is the part that is easy to miss: the discount is taken from the whole price, but it all lands on the margin.
How many more orders to break even?
To earn the same total contribution, you need $20.50 ÷ $10.80 ≈ 1.9 times as many orders. In this example, a sale has to bring in roughly 90% more orders than you would otherwise have had, just to match the contribution you would have earned at full price, before counting any advertising spent to promote it.
And "otherwise have had" matters. Some customers who use the code would have bought anyway. Their orders count against the discount, not for it.
When a discount can still make sense.
- Clearing stock that would otherwise be written off, where the comparison is against zero, not full price.
- Acquiring customers who come back. If you know your repeat rate and repeat margin, a thinner first order can be a reasonable investment. If you don't know them, it is a guess.
- Bundles and thresholds that raise order value enough to spread fixed fulfillment costs across more product.
Alternatives worth testing.
A gift with purchase, free shipping above a threshold, a bundle price, or early access for subscribers can each create urgency with a smaller hit to contribution. None is automatically better; each needs the same arithmetic.
Before the next sale, write down three numbers: contribution per order at full price, contribution at the sale price, and the order lift you would need. If the required lift looks unrealistic, change the offer, not the forecast.
For the longer version of this calculation, including acquisition cost, see the guide on AOV, margin, and what you can afford to acquire.
Want a second pair of eyes?
Use the free worksheet on your own store, or book a 15-minute call to talk through your situation.