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Discounts and promotions without losing margin

| Article: 3 min read | Marketing

A promotion is a temporary change of terms (a discount, a gift, free delivery, a bundle) meant to raise sales. The main question is not "how much did we sell" but "how much did we earn after the discount" and whether these people would have bought without it.

In plain words

A discount reduces revenue on every unit. For it to pay off, you must sell more than usual and not lose margin. The lower your margin, the more extra sales you need.

How much extra you need to sell

The formula: required volume increase = discount / (margin - discount), where margin and discount are shares of the old price.

A made-up example (the numbers are invented). Gross margin 30%, discount 10%: 10 / (30 - 10) = 50%. You must sell 50% more units to earn the same amount of gross profit in hryvnias as without the discount. With a 20% discount you need 20 / 10 = 100% growth, that is, twice as much. With a 30% discount the margin disappears entirely. So before a promotion, calculate gross margin separately for each product.

What is known about market practice

  • Impact Analytics (an analysis of the top 1,000 SKUs in 13 categories) on Prime Day 2025: only 14% of SKUs got discounts versus 38% in 2024, but the average discount depth rose by 8 percentage points; in electronics it reached 38%. The authors link this to tariff uncertainty, inflation and inventory control and advise moving from broad promotions to category-level discounts (Impact Analytics, 2025). This is an analysis by a company that sells such solutions.
  • Adobe (US): peak discount levels on Cyber Monday 2025 were 31% on electronics, 28% on toys, 25% on apparel, 23% on computers (Adobe, December 2025).
  • Ukraine: according to Promodo, in H1 2025 consumers were more price-sensitive and bought more often with smaller orders (Promodo, 2025). Delivery at 15-20% of the product price remains a barrier, which is why free delivery above an order threshold often works better than extra percentage points of discount; test on your own data: free shipping threshold.

Types of promotions and their risks

Type

Upside

Risk to margin

Percentage discount

Simple

Lowers margin across all products

Discount above an order threshold

Raises average order value

Can cut margin on large baskets

Gift with purchase

Does not reduce the price

Cost of the gift

Bundle

Sells combinations

Margin is hard to calculate

Private sale for subscribers

Feeds the list

Trains people to wait for promotions

Free delivery

Removes a barrier

Delivery cost (see Nova Poshta)

The table reflects general practice, not a conclusion from one study.

How to measure

  1. Record before the promotion: regular sales, margin, returns.
  2. After the promotion, compare gross profit, not revenue.
  3. Check whether sales dropped after the promotion (customers may have bought ahead).
  4. Estimate how many customers are new: if mostly existing ones, you may have given a discount to people who would have bought anyway. To check, see incrementality.

Common mistakes

  • A discount on the whole catalog.
  • Not counting advertising, delivery and returns.
  • Constant promotions: customers stop buying at full price.
  • A discount on products with the thinnest margin.
  • Unrealistic "was/now" figures: the price is first raised, then "cut". This is misleading; check the requirements of the law on advertising and consumer protection.

FAQ

How do I run a promotion without losing margin? Calculate the required increase with the formula, pick products with spare margin, and limit the promotion by time and quantity.

Which is better: a discount or a gift? There is no universal answer; compare the gross profit of both options in a test.

How often should promotions run? There is no fresh data on the ideal frequency. A sign of trouble: sales at full price are falling.

Sources

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