How to run a sale without losing money
A sale always looks good on the revenue chart. Orders go up, the dashboard turns green. Did the store make more money? That depends on one thing: how much of your margin the discount eats.
The discount comes out of profit, not price
Take a $40 tote bag that costs $16 all in. Profit is $24.
Put it on at 20% off. The price drops by $8, to $32. But the cost does not move, so the whole $8 comes out of your profit, which is now $16.
The price fell 20%. The profit fell 33%.
To end up with the same $24 × your usual sales, you now need 24 ÷ 16 = 1.5 times as many sales. A 20% discount needs 50% more orders just to break even.
The formula
With margin and discount as decimals:
sales needed = margin ÷ (margin − discount)
How many more sales you need
| Your margin | 10% off | 20% off | 25% off | 30% off |
|---|---|---|---|---|
| 60% | +20% | +50% | +71% | +100% |
| 50% | +25% | +67% | +100% | +150% |
| 40% | +33% | +100% | +167% | +300% |
| 30% | +50% | +200% | +500% | no profit |
| 25% | +67% | +400% | no profit | no profit |
The table is the whole argument. At a 60% margin, a 20% sale needs a busy weekend. At a 30% margin, the same sale needs three times the orders. At 25%, a 25% discount leaves nothing, however much you sell.
Check your own margin first, after fees and shipping, not just on product cost. The profit margin calculator gives you that number.
When a discount is worth it
A discount pays when the sales it brings are extra sales: customers who would not have bought at full price, or would have bought later, elsewhere, or not at all. It costs you when it mostly goes to people who were going to buy anyway.
Discounts tend to work better:
- to clear stock that is costing you storage or going out of season,
- on first orders, when a new customer is likely to come back at full price,
- around events when shoppers expect them and compare offers.
They tend to work worse as a regular habit. Customers learn to wait for the next one.
Cheaper ways to say “deal”
If your margin is too thin for a straight discount, these often cost you less than they are worth to the customer:
- Free shipping over a minimum. The customer saves the shipping charge, and the larger basket pays for the label. See the free shipping guide.
- A gift with purchase. A gift that costs you $3 can feel worth $10 to the customer, far cheaper than $10 off.
- Bundles. “Three for $99” instead of $36 each lowers the price per item but raises the order value, and fees and shipping are paid once.
- Tiered offers. “10% off over $75” protects small orders and pushes basket size up.
Watch for stacking
Two discounts do not add up the way they look. 20% off and then an extra 10% off is 0.8 × 0.9 = 0.72 of the price, so 28% off, not 30%. That works in your favour. What does not is a sitewide sale that combines with a welcome code and free shipping, and quietly takes an order below cost. Test your checkout with every code that will be live before the sale starts.
Judging the sale afterwards
Compare profit, not revenue:
- Total profit during the sale: (sale price − cost) × units sold, for each product.
- Profit in a normal period of the same length.
- The week after the sale. If it is unusually quiet, some of the sale’s orders were just brought forward.
If (1) is not clearly above (2) after allowing for (3), the next sale needs a smaller discount, a higher-margin product or a different kind of offer.
The discount calculator works out the sale price, the profit before and after, and the extra sales needed for any discount. If the sale is meant to shift slow stock, the break-even calculator shows what the store needs to sell in a month to cover its costs at the lower price.