Quick answer
To earn the same profit after a discount, multiply your sales by the unit margin before the discount divided by the unit margin after it. Example: a product sold for €100 excluding VAT that costs you €70 earns €30; at 10% off, it only earns €20. You therefore need to sell 1.5 times as much, 50% more sales, to keep the same profit.
Did your competitor really cut its price?
Track its price over time before changing yours.
Test 3 URLs for freeA 10% discount looks modest. For your margin, it is not: the price falls, your purchase cost does not, and the whole discount comes out of your profit. Before launching a promotion or following a competitor’s price cut, a two-minute calculation tells you how many extra sales you will need.
Why does a small discount cost so much?
Take a product sold for €100 excluding VAT that costs you €70 (purchase and transport). Each sale earns €30. With a 10% discount, the price drops to €90 but the cost stays at €70: the margin falls to €20. The price only dropped by 10%, but the unit margin lost a third.
| Fictitious example | No discount | 10% discount |
|---|---|---|
| Selling price excl. VAT | €100 | €90 |
| Unit cost | €70 | €70 |
| Margin per sale | €30 | €20 |
| Sales needed to earn €60 | 2 | 3 |
To earn the same €60, you need three sales instead of two: 50% more sales. And if your starting margin is only €20 (a cost of €80), the same discount halves it: you need to double your sales.
Which formula should you use?
Let m be your margin percentage (margin ÷ selling price excluding VAT) and d the discount, as a percentage of the price:
Sales increase needed = d ÷ (m − d)
With a 30% margin and a 10% discount: 10 ÷ (30 − 10) = 0.5, i.e. +50%. The calculation assumes a constant unit cost and works on prices excluding VAT or sales tax. A 10% discount on the price including VAT also cuts the price excluding VAT by 10%, so the percentage is the same.
Do not confuse margin and markup. In our example, the margin is 30% (30 ÷ 100) and the markup is 42.9% (30 ÷ 70). The formula uses the margin. If you know your markup k, your margin is k ÷ (1 + k).
How many more sales do you need, by margin?
| Margin | Discount −5% | −10% | −15% | −20% | −25% |
|---|---|---|---|---|---|
| 20% | +33% | +100% | +300% | Impossible | Impossible |
| 30% | +20% | +50% | +100% | +200% | +500% |
| 40% | +14% | +33% | +60% | +100% | +167% |
| 50% | +11% | +25% | +43% | +67% | +100% |
“Impossible” means the discount equals or exceeds your margin: each sale earns nothing or costs you money, and no volume can make up for it. In France, if the price also falls below your effective purchase price, the sale becomes illegal except in specific cases (see our article on selling below cost in France).
Example over a month of sales
You sell 200 units a month of this product at €100 excluding VAT, with a €70 cost: €6,000 of margin. You test a 10% discount:
- To keep €6,000, you need to sell 300 units (6,000 ÷ 20).
- If the discount lifts sales by 30% (260 units), margin falls to €5,200: €800 less than before, with more orders to prepare.
- Only above 300 units does the promotion earn more than the regular price.
What the formula does not tell you
- Costs proportional to the price: a marketplace commission or payment fees charged as a percentage fall slightly with the price. If they are significant, include them in the calculation.
- Fixed costs per order: picking, packaging, free delivery. They reduce the real margin on each sale and make the discount even more expensive.
- Sales that would have happened anyway: some customers would have paid full price. Those sales only bring in the reduced margin.
- Goals other than margin: clearing stock, winning new customers, making room for a new collection. The formula does not rule them out; it shows what they cost.
And for a price increase?
The reasoning works the other way too. With a price increase h, you can lose up to h ÷ (m + h) of your sales without losing money. With a 30% margin, a 5% increase remains profitable as long as you lose less than 14% of your sales (5 ÷ 35).
Should you follow a competitor’s price cut?
A discount is often a reaction: a competitor cuts its price and you follow. Three checks before touching your price:
- Is it really cheaper? Compare the same product and the final price, delivery included. You may already be cheaper. Our guide to product matching helps avoid false comparisons.
- Will it last? A 48-hour promotion does not call for the same response as a cut in place for three weeks. Price history answers the question.
- Is the required volume realistic? If the table asks for +100% sales, keep your price and use another argument, or limit the cut to products where it has a measurable effect.
Competiprice automatically checks the prices of the competitor URLs you track, keeps their history and emails you when a price changes or falls below a threshold (see competitor price alerts). You then decide: the tool never changes your prices. To follow your position over time, a price index sums up the gaps in a single indicator.
No account needed: paste your competitors’ URLs and compare their prices with yours.
Frequently asked questions about discounts and margin
How do you calculate the impact of a discount on margin?
Deduct the discount from the selling price excluding VAT, then subtract the unit cost: this gives the new margin per sale. The ratio between the old and new margins shows how many sales you need to earn the same amount. Example: €30 ÷ €20 = 1.5, i.e. 50% more sales.
What is the difference between margin and markup?
Margin compares profit with the selling price excluding VAT; markup compares it with the purchase cost. A product bought for €70 and sold for €100 excluding VAT has a 30% margin and a 42.9% markup.
Should a discount be calculated before or after VAT?
Work excluding VAT: the tax is not yours. A 10% discount on the price including VAT also cuts the price excluding VAT by 10%, so the percentage stays the same.
Is a 10% discount profitable?
Only if it lifts sales enough. With a 30% margin, you need 50% more sales; with 50%, 25% more; with 20%, you need to double your sales.
Should you match a competitor’s price cut?
Not automatically. Check that the product and final price are comparable, that the cut is lasting and that the volume needed to offset your discount is realistic.
Method: arithmetic on fictitious example figures, with a unit cost assumed to be constant.