Most sales are planned in about a minute. Pick a number that sounds generous, usually 10% or 20%, put it on a poster, and wait for the rush.
The trouble is that the number on the poster is not the number that hits your business. I shared these slides this week, and the arithmetic behind them is worth five minutes of any owner’s time before the next sale goes up.
The math
You sell an item for $100. It costs you $60 to buy or make. That leaves $40 of gross profit on every sale.
Now you take 10% off. The price is $90. Your cost is still $60, because your supplier did not give you a discount just because you gave one to your customer. Gross profit on each sale is now $30.
How 10% turned into 25%
The customer saved $10. That $10 had to come from somewhere, and it could not come from the $60 you owe your supplier. It came out of your $40.
$10 out of $40 is a quarter. So the price fell by 10%, but the money you actually keep fell by 25%. The whole discount came out of the only part of the price that was ever yours.
What it takes to earn it back
Say you normally sell 100 of these a month. At $40 each, that is $4,000 of gross profit.
At $30 each, you need about 134 sales to reach the same $4,000. That is 33% more customers, 33% more stock, and a third more packing, delivery, messages and time. All of it for the same money you had before the sale started.
And that is the generous version. It assumes every one of those extra 34 buyers came because of the sale. In real life, some of the people who buy at $90 would happily have paid $100. For them, the discount brings in nothing new. It just hands over $10 of your profit.
Check your own numbers in ten seconds
Your margin is probably not exactly 40%, so here is the general rule. Take the discount and divide it by what is left of your margin after the discount:
Extra sales needed = discount ÷ (margin − discount)
For the example above, that is 10 ÷ (40 − 10), which gives 33%. Here is the same sum for the margins and discounts most small businesses use:
| Your gross margin | 5% off | 10% off | 15% off | 20% off |
|---|---|---|---|---|
| 20% | +33% | +100% | +300% | No profit left |
| 30% | +20% | +50% | +100% | +200% |
| 40% | +14% | +33% | +60% | +100% |
| 50% | +11% | +25% | +43% | +67% |
| 60% | +9% | +20% | +33% | +50% |
Find your row and read across. If your margin is 20% and you give 10% off, you have to double your sales just to stand still. Give 20% off on that margin and every sale makes nothing at all.
The thinner your margin, the more a discount hurts. Resellers, small shops and anyone buying stock to sell on usually sit in the top rows, which is exactly where a casual “20% off everything” does the most damage.
Before you run your next sale
- Know your real margin. Not the margin on materials alone, but after your overheads and your own time. Many owners think they are at 40% when they are really nearer 25%, and that moves them up the table.
- Find your row and be honest. If the table says you need 50% more sales, ask whether this sale will realistically bring that many new buyers, not just the regulars who were going to buy anyway.
- Be clear what the sale is for. Clearing old stock that is sitting on a shelf is a sensible reason to discount, because it turns stuck stock back into cash. “Boosting sales” on its own is not a reason. It is a hope.
- Put limits on it. A clear end date, and if you can, only certain products. Open-ended discounts teach customers to wait.
- Measure profit afterwards, not revenue. A busy week with a full till can still leave you with less than a quiet week at full price.
If you still want to give customers a reason to buy
You do not have to cut the price to make an offer. Adding something costs you far less than taking money off. Free delivery, a small extra item, or a bundle of two products at slightly less than both bought separately all feel generous to the customer, while most of your margin stays where it is.
Rewarding loyal customers works the same way. A thank-you offer to people who have bought from you before costs much less than a public discount for everyone, including the people who would have paid full price.
Free tools to check your numbers
The table above only works if you know your true margin. I built a free pricing calculator that works it out for you. Pick your currency, enter one product, and it shows your real cost per unit with your time and overheads included, what each sale actually leaves you, the price you need for the margin you want, and how many customers you could lose after a price rise and still earn the same. It works in any currency, there is no sign-up, and nothing you type is stored.
You will find it, along with the Emergency Fund Calculator for your personal savings, on the Free Resources page. If you want to see how a price rise compares with selling more or cutting costs, read 3 ways to make more profit in a small business, and for the hidden cost of your own hours, What does one sale really pay you?
Discounting is not a marketing decision. It is a margin decision.
Send this to someone running a sale.
The full method is in the book
The discount math comes from Chapter 5, “Pricing Mistakes,” of my book The Small Business Financial Survival Guide. The chapter also covers the difference between markup and margin, why busy businesses can still run short of cash, and a short exercise for pricing one product properly. The rest of the book deals with cash flow, profit, budgeting and the other numbers small business owners are rarely taught, in plain English and without accounting jargon.
★★★★★ “Really useful and terrific real world examples”
Verified Amazon review, September 2026
The $100 item is an illustration, but the arithmetic works the same for any price and any currency. This post is general education, not personal financial, tax or legal advice. Ismail Hassan is an ACCA-qualified accountant who writes practical finance guides for small business owners under HikmaDaily.
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