Discount profitabilityPromotionsLive
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
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 usually most of it.
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 / What it looks like
What a 20% discount actually costs
Price, full€100
Contribution, full€30
Price, 20% off€80
VAT still due−€13
Goods still cost−€57
Contribution left€10
The goods, the tax and the fee do not shrink with the discount. On a 30% margin, a fifth off the price takes two thirds of what the order would have left.
Two thirds of the profit on every unit is gone, so the promotion needs roughly three times the volume before it has paid for itself. VAT comes out first, because a discount reduces the tax owed along with the price.
03 / 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 wipe out two thirds of a month’s contribution.
Break-even volume rises faster than people expect
To make the same money at 20% off on a 30% margin, the promotion has to sell three times as many units. 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.
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 product05 / How it is worked out
From the account
to the figure on the screen.
- 01ReadsWhat was actually taken off, per order and per line.
- 02NetsVAT out first — a discount reduces the tax owed along with the price.
- 03MeasuresThe giveaway against the contribution margin it came out of.
- 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 reasons06 / 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.
07 / How the figure is kept honest
The same four rules,
on every screen.
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.
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.
Follow any number to the dated rows underneath it. A figure nobody can check is a figure nobody acts on.
The product prepares a decision and shows the evidence. Nothing consequential happens until you say so.
Questions
About Discount profitability.
- Why measure against contribution and not revenue?
- 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.
- Does it tell me to stop discounting?
- 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.
- Does free shipping count?
- 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.
- What about the VAT on a discount?
- It comes off with the price. The giveaway is measured net, because the tax was never yours in the first place.
One operating system
The rest of the picture,
one view away.
Each part is useful on its own. Profflow holds them in one model, so a figure here carries the context from everywhere else.
See the whole productSee 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.