How to Run a Sale Without Losing Money (Discount Maths Explained)

Stacked discounts are not added together

“20% off, plus an extra 10% at checkout” sounds like 30% off. It is not. The second discount applies to the already-reduced price:

• $100 − 20% = $80
• $80 − 10% = $72

That is 28% off, not 30%. The formula for two discounts is:

Total discount = 1 − (1 − D1) × (1 − D2)

This works in your favour as a seller – but make sure your advertising is accurate. Saying “30% off” when the real total is 28% can break advertising rules in many countries.

The real cost of a discount: it comes out of your margin

Here is the part most sellers miss. Your costs do not go down when you run a sale – so every pound, dollar or rupee of discount comes straight out of your profit.

Take a product that sells for $50 and costs $30 (a 40% margin, $20 profit):

A 20% discount halves the profit. A 40% discount means you are working for nothing – and once marketplace or payment fees are included, you are losing money on every order.

How many more sales do you need?

To earn the same total profit during a sale, you need to sell more units. The formula is:

Extra sales needed = Margin ÷ (Margin − Discount) − 1

With a 40% margin, a 20% discount means you need to sell twice as many units just to make the same profit. If the sale does not at least double your orders, you would have done better without it.

Fees make this worse: platform and payment fees are charged on the selling price, so your margin after fees is lower than your product margin. Use our Etsy, eBay or Shopify calculators to find your real margin before planning a sale.

When discounts make sense

Discounts are not always bad. They work well when:

• Clearing old or seasonal stock that would otherwise sit unsold (your cost is already spent).
• Winning a first order from a new customer who is likely to buy again.
• Reactivating lapsed customers on your email list.
• Big shopping events like Black Friday, when buyers expect deals and volume really does jump.
• Moving slow products to free up cash and storage.

The key is to know your numbers first and set a clear goal for the sale.

Smarter alternatives to straight price cuts

1. Free shipping over a threshold. “Free shipping over $50” lifts average order value instead of cutting prices on every order.
2. Bundles. Sell three items for less than three separately. Your fixed costs per order (packaging, fixed fees) are shared, so the discount costs you less.
3. Gift with purchase. A small, low-cost extra often feels more valuable to customers than its cost to you.
4. Tiered discounts. “10% off $50, 15% off $100” encourages bigger baskets.
5. Limited, targeted codes. Send discounts to email subscribers or past customers rather than showing them to everyone who would have paid full price anyway.
6. Value, not price. Better photos, faster dispatch or personalisation can do more for sales than a lower price.

A pre-sale checklist

• What is my margin after fees on each product in the sale?
• What is the lowest price I can accept (my break-even)?
• How many more orders do I need to make the sale worthwhile?
• Is the discount only on products with enough margin?
• Are stacked codes limited so customers cannot combine too many offers?
• Is my advertised discount accurate?
• When does the sale end, and is that clear to customers?

Psychological pricing tips for sales

• Show the original price crossed out next to the sale price – but only if you genuinely sold at that price before. Fake “was” prices are illegal in many countries.
• Percentages vs amounts: on cheaper items, “25% off” sounds bigger; on expensive items, “$50 off” often sounds bigger.
• Deadlines (“ends Sunday”) create urgency, but only use real deadlines.

The bottom line

A discount always comes out of your profit, and the lower your margin, the more extra sales you need to make it worthwhile. Know your margin after fees, calculate the extra orders you need, and prefer bundles, thresholds and targeted codes over site-wide price cuts. Check your numbers with the discount calculator and the profit margin calculator before every sale.