Guides · 12 October 2026

How discounts turn a profitable product into a loss

A discount comes straight off your profit, not off your revenue-shaped hopes. Most of your costs do not shrink when the price does, so a sale that looks modest can wipe out the margin. Here is a worked example you can follow with a calculator.

The product

At full price

• Payment fee: $40 × 2.9% + $0.30 = $1.46
• Returns allowance: $40 × 5% = $2.00
• Total cost: $22 + $5 + $1.46 + $2.00 = $30.46
• Profit: $40 − $30.46 = $9.54, a net margin of about 23.9%

What a discount does

A 20% discount removed more than three quarters of the profit. At 30% off, every order loses money, and the more you sell, the more you lose.

Why it happens

The product cost and shipping are fixed amounts. Only the payment percentage and the returns allowance shrink with the price. So each dollar of discount comes almost entirely out of profit.

Find your own limit

1. Add the fixed costs: product cost + shipping + fixed payment fee. Here that is $22 + $5 + $0.30 = $27.30.
2. Add the percentage costs: payment % + returns % = 2.9% + 5% = 7.9%.
3. Break-even price = fixed costs ÷ (1 − percentage costs) = $27.30 ÷ 0.921 = $29.64. Below that, you lose money.
4. Deepest discount before a loss = 1 − break-even ÷ price = 1 − 29.64 ÷ 40 = about 25%.
5. To keep a 20% net margin, divide by (1 − 0.079 − 0.20) instead: $27.30 ÷ 0.721 = $37.86, so the discount limit is only about 5%.

What to do about it

• Set a per-product discount cap based on the maths above, not a store-wide percentage.
• Exclude thin-margin products from sitewide sales and discount codes.
• If a product can’t carry any discount, raise the price, negotiate the supplier cost, or bundle it with a higher-margin item.
• Re-check after any change to price, supplier cost, shipping rates or payment fees.