A 10%, 20% or even 30% discount can sound straightforward when you're planning a promotion.
But what does that discount actually do to your profit?
If you normally sell a product for $50 and reduce the price by 20%, your new selling price is $40. Your revenue has fallen by $10 — but your product cost, packaging and many of your other costs haven't fallen with it.
That means a 20% discount can reduce your profit by much more than 20%.
Before launching a sale, it helps to know your break-even price and approximately how much you can discount before the sale stops being profitable.
Why discounts affect profit more than you might expect
Imagine you normally sell a product for $50.
Your total costs associated with the sale are $30, leaving you with:
$50 − $30 = $20 profit
Now you offer a 20% discount.
Your discounted selling price becomes:
$50 × (1 − 20%) = $40
If your costs remain $30, your new profit is:
$40 − $30 = $10
Your selling price fell by 20%.
But your profit fell from $20 to $10 — a 50% reduction in profit.
This happens because a discount reduces your revenue while many of your costs stay the same.
How to calculate profit after a discount
The basic calculation is:
Discounted Price = Original Price × (1 − Discount Percentage)
Then:
Profit After Discount = Discounted Price − Costs
For example:
Original price: $80
Discount: 25%
Costs: $45
First, calculate the discounted price:
$80 × (1 − 0.25) = $60
Then calculate the remaining profit:
$60 − $45 = $15
So after the 25% discount, you would have $15 remaining before accounting for any other costs that haven't already been included.
This simple calculation works when your costs are fixed amounts.
For online sellers, however, there may also be percentage-based fees to consider.
Marketplace fees change the calculation
If you sell through an online marketplace, some costs may be calculated as a percentage of the sale.
These might include:
- Marketplace commission
- Transaction or payment fees
- Affiliate commission
- Certain programme or service fees
Suppose your discounted selling price is $40 and your combined percentage-based selling fees are 12%.
Your fees would be:
$40 × 12% = $4.80
If your other fixed costs are $25, your estimated profit would be:
$40 − $4.80 − $25 = $10.20
This is why calculating a promotion using only your product cost may give you an incomplete picture.
What is a break-even price?
Your break-even price is the selling price at which your estimated profit reaches zero.
At this point, the revenue from the sale covers the costs included in your calculation, but there is no remaining profit.
If all your costs are fixed, the calculation is simple.
Suppose your total cost per order is $24.
Your break-even selling price would also be:
$24
Sell above $24 and there may be profit.
Sell below $24 and you would make a loss based on the costs included in the calculation.
But if you also pay percentage-based selling fees, your break-even selling price needs to be higher.
How to calculate break-even price with selling fees
Suppose your fixed costs are $24 and your marketplace and payment fees total 12% of the selling price.
A simplified break-even formula is:
Break-even Price = Fixed Costs ÷ (1 − Percentage Fees)
So:
$24 ÷ (1 − 0.12)
$24 ÷ 0.88 = $27.27
Your estimated break-even selling price is therefore approximately $27.27.
At that price, 12% of the sale goes towards percentage-based fees and the remaining amount covers your $24 of fixed costs.
How to calculate the maximum discount before losing money
Once you know your break-even price, you can compare it with your regular selling price.
A simplified formula is:
Maximum Discount = 1 − (Break-even Price ÷ Regular Selling Price)
Suppose:
Regular selling price: $40
Break-even price: $27.27
Then:
1 − ($27.27 ÷ $40) = 31.8%
This means that, based on the costs included in this example, approximately 31.8% is the mathematical break-even discount.
At that point, estimated profit reaches approximately zero.
Importantly, this doesn't mean you should offer a 31.8% discount. It simply tells you where the break-even point sits based on the figures entered.
You may want to retain a certain amount of profit, account for costs not included in the calculation, or choose a smaller promotion for other business reasons.
Maximum discount and a sensible discount are not the same thing
Your maximum break-even discount answers:
“How far could the price fall before estimated profit reaches zero?”
It doesn't answer:
“What discount should I offer?”
Those are different questions.
A promotion that leaves only a few cents of profit may technically remain above break-even, but that doesn't necessarily make it appropriate for your business.
Your decision might also depend on:
- Why you're running the promotion
- Your desired profit
- Customer acquisition costs
- Inventory levels
- Repeat purchases
- Competitor pricing
- Sales volume
- Other business expenses
Calculating the maximum discount gives you a boundary to understand. What you do within that boundary is a separate business decision.
What if you want to keep a minimum profit?
You don't have to calculate discounts based only on break-even.
Suppose you normally sell a product for $50 and you want to retain at least $10 profit per sale.
If your fixed costs and percentage-based fees are known, you can test different discount levels and see when estimated profit falls below $10.
For example:
10% discount → test the resulting profit
15% discount → test again
20% discount → compare the result
This gives you a different limit from the absolute break-even discount.
Instead of asking “When do I start losing money?”, you're asking:
“How much can I discount while still retaining the amount of profit I want?”
Both can be useful questions when planning a promotion.
Seller-funded vouchers also reduce what you keep
A seller-funded voucher can have a similar financial effect to a discount.
Suppose your listed price is $50 and you fund a $5 voucher.
From the seller's perspective, that $5 needs to be considered when estimating what remains from the order.
Marketplace promotion structures can vary, so the exact treatment of vouchers and platform fees may depend on the marketplace and programme.
When selling on platforms such as TikTok Shop or Shopee, check how your specific promotion is funded and which amount the platform uses to calculate applicable fees.
Don't forget advertising during a sale
Promotions are often combined with paid advertising.
This creates another cost that can be overlooked when assessing whether a sale is profitable.
For example:
Profit after discount and marketplace fees: $9
Average advertising cost per order: $6
Estimated profit after advertising:
$9 − $6 = $3
The promotion may still generate positive profit based on this simplified example, but the amount retained is very different once advertising is included.
If you're evaluating a promotion, include the costs associated with generating the sale wherever they can reasonably be estimated.
Why large discounts can be especially difficult for low-margin products
Consider two products that both sell for $50.
Product A
Regular profit: $25
Product B
Regular profit: $10
If both products receive the same $10 price reduction, the financial effect is very different.
Ignoring any changes to percentage-based fees for simplicity:
Product A's profit falls from $25 to $15.
Product B's profit falls from $10 to $0.
The same discount therefore doesn't have the same effect on every product.
Your existing cost structure and profit matter.
Should you ever discount below break-even?
There are situations where a business may intentionally sell something at or below its calculated break-even price.
Examples might include clearance, customer acquisition, bundles or other promotional strategies.
However, a loss-making sale remains a loss-making sale based on the costs included in the calculation.
Whether accepting that loss makes sense depends on the wider economics and goals of the business.
The useful part is knowing when it is happening rather than assuming a promotion remains profitable.
How discounts affect your profit margin
Discounts can also change your profit margin substantially.
Suppose:
Regular selling price: $50
Regular profit: $20
Your regular profit margin is:
$20 ÷ $50 × 100 = 40%
Now suppose a discount reduces your selling price to $40 and your resulting profit is $10.
Your new profit margin is:
$10 ÷ $40 × 100 = 25%
So the selling price fell by 20%, while the profit margin fell from 40% to 25%.
This is another reason to calculate the discounted scenario separately rather than applying the discount percentage directly to your existing profit margin.
How to check whether a discount is still profitable
Before launching a promotion, gather the figures that affect each sale:
- Regular selling price
- Planned discount
- Product or material cost
- Packaging
- Seller-paid shipping
- Marketplace commission
- Payment or transaction fees
- Affiliate commission
- Advertising cost per order
- Seller-funded vouchers
- Other applicable selling costs
Then compare your regular and discounted scenarios.
Look at both the amount of profit remaining and the resulting profit margin.
Seller Ledger's Discount Profit Calculator is designed for exactly this comparison. It can estimate your regular profit, discounted profit, break-even price and maximum discount based on the costs and fees you enter.
The takeaway
The biggest thing to remember is simple:
A 20% discount does not necessarily mean a 20% reduction in profit.
Many of your costs remain even when your selling price falls.
Before deciding how much to discount a product, understand:
- Your regular profit
- Your fixed costs
- Your percentage-based selling fees
- Your profit after the proposed discount
- Your break-even price
- Your maximum break-even discount
Your maximum discount is not a recommendation for how much you should discount.
It is simply a useful number that shows where estimated profit reaches zero based on the costs you've included.
Once you know that boundary, you can decide what kind of promotion makes sense for your own business.