Using Discounts Without Losing Profit

Written by Julia

On December 11, 2019

Using discounts for your business can be very effective but when not done right can lead to diminished profits. If you’re considering using discounts in your business, also consider planning discounts strategically and craft a program that meets your financial goals.
Read through the bullet points below for tips on how to apply discounts and protect profits at the same time.

Define the Purpose

Before considering discounts, ask yourself why are you applying discounts in the first place.
There are a number of reasons you may want to run discounts:

  • To attract new customers
  • To encourage repeat customers
  • To sell surplus inventory
  • To Increase sales
  • To bring back old customers who haven’t shopped your products for a long time

Different goals signal different methods. To attract new customers you’ll want to determine the profit margin of your discounts against the customer acquisition cost. On the other hand, to win back repeat customers you’d need to scale profit margin losses against the lifetime value of the customer. For increasing sales, you’ll need to calculate how much you can discount your products without affecting your profit margin while selling surplus inventory doesn’t affect this at all.
For calculations on customer acquisition costs before, during, and after discounts see visit The 4 Customer Metrics Every Business Should Track.

Different Discount Offers

These methods can be applied together or separately.

  • Discounts on individual products
  • Buy one get one free
  • Bundled discounts (a few products offered together with a discount)
  • Seasonal discounts
  • Free shipping on sales of X amount and up
  • New customer discounts
  • Volume discounts (i.e. if the customer is buying 5+ items)
  • Returning customer discounts
  • Refer a friend discount

The method you use depends on the goal you are trying to achieve.

Picking a Discount That is Still Profitable

Discounts can cut into your profits. In order to avoid this, calculate these variables:

  • Break-even point: Divide total fixed costs (rent, utilities, labor, insurance, property taxes, etc.) by the contribution margin (revenue generated from per sales after subtracting general costs).
  • Break-even units: Divide fixed costs by the revenue per unit minus the variable cost per unit.
  • Break-even price: Divide the fixed costs by the number of units you expect to sell to find the fixed costs per unit.

Tip: Use low budget marketing methods such as social media platforms, which are mostly free and won’t affect your cost margins.
The numbers from your calculations determine how many sales you will need to stay profitable.
You may want to consider taking a business loan, or a line of credit to make sure your profits are still high.
Celeri Network offers business loans for businesses with over $100K of annual revenue.


Using discounts for your business can be very effective. It’s important to analyze your products and your customers as this will inform the discounts you should be offering and when you should offer them as well. Discounts can help your business attract new customers and returning customers which makes up most of your revenue growth.
For tips on getting returning customers visit How to Get Returning Customers

You May Also Like…

The Celeri Journal #45: SBA Chaos

The Celeri Journal #45: SBA Chaos

Global Markets Recap Today is the day the Small Business Administration and Treasury are supposed to be distributing $350 billion to companies of all sizes to kickstart the economy and keep employees on the payroll except for one small problem – no one knows how the...

read more
SBA’s 7(a) Loan for Small Business

SBA’s 7(a) Loan for Small Business

Recently the global economy is slammed by the coronavirus, and small businesses have been hit hard. Last week, the government and financial institutions began to implement economic relief programs to fight the coronavirus crisis. The government signed a $2 trillion...

read more
The Celeri Journal #44: Goldman’s Small-Business View

The Celeri Journal #44: Goldman’s Small-Business View

Global Markets Recap At a time when the national economy is reeling, it is always insightful to learn from other experts in the field. Goldman Sachs, long considered one of the most prestigious capital-market banks in the world, put out an illuminating and insightful...

read more


Submit a Comment

Your email address will not be published. Required fields are marked *

Subscribe To The Celeri Journal

Subscribe To The Celeri Journal

Our daily newsletter offers views on the global economy through the context of a small business owner, or student, looking to make sense of an ever-changing macro environment.

You have Successfully Subscribed!