How it works
A discount comes straight out of your profit, not out of your cost. That's why a sale that looks small on the tag can take a big bite out of what you make on each unit.
Example. An item sells for $4.99 and costs you $2.75, so you normally make $2.24 a unit at a 44.9% margin.
At 20% off, the price is $3.99. You now make $1.24 a unit, and your margin drops to 31.1%.
If you usually sell 100 a week, you'd need to sell 181 on sale just to bring in the same profit. That's 81% more units for a 20% discount.
Why a small discount needs a big lift
The higher your cost is compared with your price, the harder a discount hits. When an item has a thin margin, even 10% off can wipe out most of the profit on each sale. When it has a fat margin, you have more room to discount and still come out ahead.
That's why many stores keep deep discounts for items where the supplier pays for part of the deal, or for items meant to bring people in so they buy something else at full price.
When a sale still makes sense
- The supplier funds it. If the vendor gives you a scan rebate or a lower cost during the promotion, enter that lower cost to see your real margin.
- It moves stock you'd otherwise lose. For items close to their date or out of season, some profit beats a write-off.
- It grows the basket. A cheap drink can still pay off if it brings in shoppers who also buy snacks at full margin.
Common questions
- Is 20% off the same as a 20% margin hit?
- No. The price drops by 20%, but your profit drops by a lot more, because the whole discount comes out of profit. In the example, profit per unit fell by 45%.
- How do I price a "2 for" deal?
- Work out the deal price per unit (2 for $7 is $3.50 each), then use the markup and margin calculator with that price and your cost.
- Why does the sale price round to the cent?
- Registers ring whole cents, so the calculator rounds the discounted price to the nearest cent before working out margin and profit.
Last updated October 11, 2026.