How Much Can I Discount?
Every product has a maximum discount before you lose money on every unit sold. Here is how to find yours.
The simple case (no fees or shipping)
Max discount = 1 − (Unit cost ÷ Regular price). A $30 item costing $8 to deliver can theoretically discount up to 73.3% before hitting zero contribution profit.
Why fees and shipping lower your ceiling
Percentage payment fees, fixed transaction fees and seller-paid shipping all eat into the price before cost is even subtracted — each one lowers your true maximum discount below the simple formula's answer.
Why "maximum" isn't "recommended"
Zero contribution profit means the sale contributes nothing toward fixed overhead like rent, salaries or software. Treat the maximum as a hard ceiling you should stay well clear of, not a target discount.
A complete break-even example
Suppose a product sells for $30, costs $8, carries $4 of seller-paid shipping and uses a payment processor charging 2.9% plus $0.30. At a discounted price of P, contribution profit is P − 2.9% × P − $0.30 − $8 − $4. Setting that expression to zero gives a break-even price of about $12.67, so the mathematical maximum discount is about 57.8%—well below the 73.3% suggested by product cost alone.
Protect a target contribution margin
Break-even is not enough for a healthy campaign. If the same product must retain a 20% contribution margin after fees and shipping, the minimum price rises to about $15.95, which limits the discount to roughly 46.8%. Fixed overhead, advertising, returns and customer support may justify an even lower ceiling.
Calculate the volume the discount must create
At the regular $30 price, the example produces about $16.83 in contribution profit. At 20% off, contribution falls to about $11.00. The campaign therefore needs roughly 53% more completed orders to produce the same total contribution before advertising and returns. Compare that requirement with historical conversion and traffic data; a discount is not profitable merely because revenue or unit sales increase.
Related tools
Create a discount approval rule
Use contribution margin to set a normal discount ceiling, then require a documented reason for exceptions. This keeps campaign urgency from replacing the economics with guesswork.
Before approval
- Calculate profit per order before and after the proposed discount.
- State the required incremental orders and the evidence supporting that forecast.
- Set a budget, eligible products, audience and end date.
After the campaign
- Measure incremental profit, not only revenue or units sold.
- Include ad spend, returns and fulfillment exceptions in the review.
- Record the result so the next promotion starts with evidence.