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Discount profitability · Promotions

A discount does not come
out of revenue.

It comes out of contribution, which is a much smaller number — the goods still cost what they cost. Profflow measures what each promotion gave away against the margin it came out of, and works out how many more units it needed to sell to have been worth running.

Measured, not estimated · EU-hosted · Read-only by default

On the screenOne €100 order, and the same order at 20% off
VAT €18.38Goods €27.06€52.86Full price · €100
VAT €14.70Goods €27.06€36.8820% off · €80
  • −30%of what the order keeps, for a fifth off the price
  • 1.43×the orders to earn the same, before ads
  • €27.06for the goods either way

The goods cost the same either way; the VAT and the card fee shrink only with the price. On this store’s figures a fifth off takes 30% of what the order keeps, and it takes 1.43 times the orders to earn the same.

The goods cost the same either way and only the VAT and the card fee shrink with the price, so a fifth off the price takes 30% of what the order keeps, and the promotion needs about 1.4 times the orders before it has paid for itself. On a thinner margin it is far more — at 30% it is three times. VAT comes out first, because a discount reduces the tax owed along with the price.

01 / The case for it

20% off does not cost 20%.

Without it

The money comes off the price, but it comes out of what was left after the goods — and the goods still cost what they cost. Measured against revenue a discount looks like a fifth. Measured against the margin it actually came out of, it is a good deal more.

What Profflow does

Measured against contribution, with the volume it needed.

What each promotion gave away, out of the margin it came from, and how many more units it had to sell to have been worth running. That multiple is the number worth arguing about, and it is rarely the one people have.

02 / Worth understanding

The arithmetic behind every promotion

  • A discount is taken out of the margin, not the price

    The customer sees a fifth off. The business loses that fifth entirely from the part that was left over, because none of the costs move. It is why a promotion that “only” cost 20% can take a third of what a month’s orders would have kept — and far more on a thinner margin.

  • Break-even volume rises faster than people expect

    To make the same money at 20% off, a store that keeps 53 of every 100 euros has to sell 1.43 times as many orders; at a 30% margin it is three times. That is the figure worth knowing before the campaign rather than after it.

  • Measured against the same weeks, not against a feeling

    Profflow compares the promotion period with an equally long stretch before it, on contribution rather than revenue — so “it was our biggest week” and “it cost us €400” can both be true and both be on the screen.

03 / What it lets you do

What follows from getting Discount profitability right.

  • Cost of every promotion

    What each code gave away, in contribution rather than in headline revenue.

  • The break-even multiple

    How much extra volume the discount needed. On a thin margin it is a number that stops the next sale.

  • VAT out first

    Measuring a giveaway against a VAT-inclusive price overstates it by the rate — not a rounding error in a 22% market.

  • Per code and per product

    A promotion that works on one product and destroys the margin on another is two different promotions.

  • Compared with the period before

    Extra units against the baseline, so the volume claim can be checked rather than assumed.

  • No verdict invented

    Whether a discount was worth running can depend on a customer coming back, which this product does not measure. It gives you the arithmetic and stops.

04 / What it is built from

Discount profitability is assembled
from accounts you already run.

01Discount codes and amounts02Order line items03Contribution margin per product04VAT by line05Units sold06The comparable period
Discount profitability
Cost of every promotionThe break-even multipleVAT out firstPer code and per product
  • 01Discount codes and amounts
  • 02Order line items
  • 03Contribution margin per product
  • 04VAT by line
  • 05Units sold
  • 06The comparable period
Discount profitability
  • Cost of every promotion
  • The break-even multiple
  • VAT out first
  • Per code and per product

05 / How it is worked out

From the account
to the figure on the screen.

  1. 01ReadsWhat was actually taken off, per order and per line.
  2. 02NetsVAT out first — a discount reduces the tax owed along with the price.
  3. 03MeasuresThe giveaway against the contribution margin it came out of.
  4. 04AnswersHow many more units the promotion needed to break even.

[ Asked of the figures ]

Did the sale actually make money?

Take a product carrying a 30% contribution margin. A 20% discount leaves 10% — two thirds of the profit on every unit is gone — so the promotion needs roughly three times the volume before it breaks even. That multiple is the number worth arguing about, and it is rarely the one people have.

How Profflow reasons

06 / How the figure is kept honest

The same four rules,
on every screen.

  • Read-only, on every plan

    Profflow observes the accounts it is connected to. It does not write an order, a price, a campaign or a payout back to any of them.

  • Measured stays measured

    A charge read from an account is labelled measured. Anything modelled — a forecast, a projection, a filled gap — is labelled as such on the screen it appears on.

  • Every figure opens

    Follow any number to the dated rows underneath it. A figure nobody can check is a figure nobody acts on.

  • You approve

    The product prepares a decision and shows the evidence. Nothing consequential happens until you say so.

About
Discount profitability.

Can’t find the answer to your question?
Contact us by clicking here.

  • Because the goods still cost what they cost. Money off the price comes out of what was left after the cost of goods, and against revenue a 20% discount looks like 20% when it is often two thirds of the profit.

  • No. It tells you what each one cost and what volume it needed. A promotion that loses contribution and wins a returning customer may well be worth it — but that is a decision, and this product does not have the customer history to make it for you.

  • Where it is applied as a discount on the order, yes. Where it is absorbed as a shipping cost it lands in the P&L as a cost, which is the honest place for it.

  • It comes off with the price. The giveaway is measured net, because the tax was never yours in the first place.

See Discount profitability on your own figures.

It comes out of contribution, which is a much smaller number — the goods still cost what they cost. Profflow measures what each promotion gave away against the margin it came out of, and works out how many more units it needed to sell to have been worth running.