The formulas
How to calculate margin after a discount
First apply the discount to the original selling price. Then subtract the item cost to find profit. Margin compares that profit with the new sale price—not with cost or the original price.
Discounted priceOriginal price × (1 − Discount ÷ 100)
Profit after discountDiscounted price − Cost
Margin after discountProfit ÷ Discounted price × 100
Worked example
A 20% discount does not mean 20% less profit
Suppose an item costs $60 and normally sells for $100. The original profit is $40 and the original margin is 40%. A 20% customer discount lowers the sale price to $80.
The customer received 20% off, but profit per item fell by 50%. This is why checking margin before launching a promotion matters.
Break-even planning
What is the maximum discount before you lose money?
Your break-even discount is the percentage reduction that makes the sale price equal to cost. For a $60 cost and $100 list price, that discount is 40%. At exactly 40% off, the sale price is $60 and profit is zero. Any larger discount creates a loss before overhead, payment fees, shipping or taxes.
Break-even discount(Original price − Cost) ÷ Original price × 100
For a safer promotion limit, include every variable cost in the cost field and leave room for operating expenses. A zero-dollar item profit is not the same as business break-even.
Decision guide
How to protect margin during a sale
- Use the full unit cost. Include packaging, transaction fees and fulfillment costs that change with each sale.
- Compare total profit, not revenue alone. More orders help only when extra volume makes up for lower profit per item.
- Set a margin floor. Choose the lowest acceptable margin before selecting the customer discount.
- Test bundles. A smaller discount on a higher order value can protect profit better than a steep item-level markdown.