A discount comes entirely out of margin, not out of cost, which is why a modest-looking reduction removes a disproportionate share of the profit. An item costing 60 and selling at 100 carries a 40 per cent margin; discount it 25 per cent and the price is 75, the profit falls from 40 to 15, and 62.5 per cent of the profit has gone.
Setting a markdown is a margin decision wearing marketing clothes, and running it backwards — from the price you want to the profit that survives — is the version that produces a defensible number.
What does a discount cost at each margin?
The higher the margin, the more discount it can absorb. The table is worth having somewhere visible before anyone agrees a promotion.
| Original margin | 10% off | 20% off | 30% off |
|---|---|---|---|
| 20% | Half the profit gone | All of it | A loss |
| 30% | A third gone | Two thirds gone | All of it |
| 40% | A quarter gone | Half gone | Three quarters gone |
| 50% | A fifth gone | Two fifths gone | Three fifths gone |
The pattern is straightforward once seen: a discount of d on a margin of m removes d ÷ m of the profit. Twenty per cent off a 20 per cent margin removes 100 per cent of it, and every unit sold at that price makes nothing.
This is also the arithmetic behind volume conditions. A promotion that removes half the profit needs to double the units to stand still, and doubling units is a much larger claim than most promotions actually deliver.
Do stacked discounts add up?
No — they multiply. Thirty per cent off followed by a further 20 per cent leaves 56 per cent of the original price, so the effective discount is 44 per cent rather than 50. Two 50 per cent discounts leave a quarter of the price, not zero.
The order does not matter, because multiplication commutes: 20 then 30 gives the same answer as 30 then 20. What does matter is whether the second discount applies to the reduced price or to the original, and that is a policy decision rather than a mathematical one.
The shortfall grows as the individual percentages grow, which is why stacking looks generous and behaves conservatively. The percentage mechanics behind this — and the reason a 25 per cent fall does not undo a 25 per cent rise — are covered in more depth in per cent and percentage points.
How do you find the discount from two prices?
Divide the difference by the original price. An item that was 79.99 and is now 59.99 has been reduced by 20, which is 25 per cent of 79.99.
That direction is the more useful one in a sale, because it exposes what a claimed discount is actually worth. A "50 per cent off" running from an inflated reference price is a different offer from the same headline against a price the item genuinely sold at, and the only way to tell is to know what it sold at before.
It also explains why so many sale prices land just under a round number. A 25 per cent reduction on 79.99 gives 59.99 — the psychological price point is not a coincidence, it is what the discount was reverse-engineered to produce.
Should you discount by percentage or amount?
Percentages read as larger on cheap items and amounts read as larger on expensive ones, which is why the same offer is advertised differently at different price points. Ten pounds off a 20 item is a 50 per cent discount; 10 per cent off a 500 item is 50 pounds.
The rule of thumb in retail is to use percentages below about 100 and cash amounts above it, and it is a presentation choice rather than a difference in the offer. What matters commercially is what it does to the margin, and that is the same either way.
What is the alternative to discounting?
Bundling, added value, or a smaller discount conditional on something. Each one protects margin in a way a straight markdown does not.
- A bundle moves slow stock alongside fast, and the blended margin can be defended where the individual one cannot.
- Free delivery costs a known amount rather than a percentage, so it caps the downside.
- A conditional discount — spend over a threshold, buy two — buys volume rather than giving it away.
- A time limit converts an ongoing margin sacrifice into a bounded one.
The failure mode of frequent discounting is that customers learn the pattern and stop buying at full price, which converts a promotion into a permanent price cut without anyone deciding to make one.
Questions people ask
Do 30 per cent and 20 per cent make 50 per cent? No, 44 per cent. The second discount applies to an already-reduced price, so it takes a percentage of a smaller number.
How do I find the equivalent single discount? Multiply what is left after each: 0.7 × 0.8 = 0.56, so 44 per cent off. The same method extends to any number of stacked discounts.
Is a bigger percentage always the better deal? Not across different original prices. Thirty per cent off one shop’s 100 and 20 per cent off another’s 80 are 70 and 64 — the smaller percentage wins.
Do vouchers always stack this way? Usually, and the terms decide. Some apply to the pre-discount price, which makes them add rather than multiply, and that is worth reading before assuming either.
Work the discount back to what it does to the profit before agreeing to it. The discount calculator handles a single reduction in both directions, the sale price calculator works from a target price, and the discount stack calculator reports the effective single discount from a chain of them.