Why a 10% discount costs more than 10%
A discount is taken off the price, but you pay for it out of your profit. Say a product sells for 500 kr and costs you 300 kr. Your profit is 200 kr, a 40% margin. Give 10% off, and the customer pays 450 kr. Your costs are still 300 kr, so your profit drops to 150 kr. The 10% discount took 25% of your profit.
To earn the same total profit as before, you now need a third more orders. That is the number to keep in mind when you decide on a discount.
How many extra sales does a discount need?
The table shows how many more orders you need to earn the same profit as without the discount.
| Discount | 30% margin | 40% margin | 50% margin | 60% margin |
|---|---|---|---|---|
| 5% | +20% | +14% | +11% | +9% |
| 10% | +50% | +33% | +25% | +20% |
| 15% | +100% | +60% | +43% | +33% |
| 20% | +200% | +100% | +67% | +50% |
| 25% | +500% | +167% | +100% | +71% |
The formula is simple: margin ÷ (margin − discount) − 1. With a 40% margin and 20% off, that is 40 ÷ 20 − 1 = 100%. You must double your sales just to stand still.
The hidden cost: people who would have bought anyway
Most discount codes also go to customers who were going to buy at full price. For them, the discount buys nothing. It just moves money from you to them. That is why the calculator asks how many would have bought anyway. For a code shown to every visitor in a pop-up, it is often more than half.
Five ways to make discounts cheaper
- Give a smaller discount. 10% often works almost as well as 20%, at half the cost.
- Set a minimum order value above your average order, so the discount also raises the basket size.
- Use single-use codes so a code can't spread on coupon websites. Our discount code generator makes them for free.
- Add an end date. A deadline makes people buy now instead of later.
- Let visitors earn the code. When a code is a prize instead of a pop-up, fewer people get it, and the ones who do feel they won it. MojiTiles is a daily puzzle for your website that does exactly that.
Questions and answers
How much does a 10% discount cost?
It costs 10% of the order value on every order that uses the code. If your profit margin is 40%, that is a quarter of your profit on the order. To earn the same as before, you need 33% more orders.
How do I calculate the break-even point for a discount?
Divide your margin by your margin minus the discount, and subtract 1. With a 40% margin and a 10% discount: 40 / (40 − 10) − 1 = 0.33. You need 33% more orders to earn the same profit as without the discount.
What is a good discount for a webshop?
The smallest one that still changes behaviour. Many shops see that 10% works almost as well as 20%, at half the cost. Free shipping or a small gift can also feel bigger to customers than they cost you.
How do I lower the cost of discount codes?
Avoid giving the code to people who would buy anyway. Use end dates, a minimum order value and single-use codes, and let visitors earn the code, for example by playing a short game, instead of showing it to everyone.