What a discount actually costs you
A discount is taken off the price, but it is paid for out of the margin, and those are very different numbers. An item costing 60.00 and selling at 100.00 carries a 40 per cent margin. Discount it by 20 per cent and the price falls to 80.00 while the cost stays at 60.00, so the margin is now 20.00 on 80.00, which is 25 per cent. A fifth off the price took nearly half the profit.
The Discount Calculator shows the discounted price; put it against your cost to see what is left. Discount Calculator
Why the damage is bigger than the number
The discount comes off the price. The cost does not move, so the whole reduction is taken out of what was left over.
The thinner the margin, the worse it is. On a 20 per cent margin, a 20 per cent discount removes the profit entirely and you are working for nothing.
Work out what you have to sell to stand still
If a discount halves your margin, you need roughly twice the volume to make the same money, and twice the volume usually costs more to deliver.
Before agreeing to one, put the discounted price into the calculator against the same cost and read the margin that comes back.
Alternatives that cost less
Offer something with a low cost to you rather than money off: a longer warranty, faster delivery, a service you already do.
Discount the next order rather than this one, so the concession buys repeat business instead of just reducing today's invoice.
Questions people ask next
Is a 20 per cent discount the same as a 20 per cent margin cut?
No, and the gap is the point. The discount is a share of the price; the margin loss is a share of what was left after cost. On a 40 per cent margin, 20 per cent off the price cuts the margin to 25 per cent.
Should I show the discount on the invoice?
Yes, as its own line. A customer who cannot see what they were given does not value it, and a total that quietly absorbs it invites a query later.