Discount Ladder Calculator
Before running a sale, understand the math. See exactly how much extra volume you need to sell to offset a price cut.
Product Economics
| Discount | New Price | Profit $ | Margin % | Volume Lift Needed |
|---|---|---|---|---|
| 0% | $100.00 | $60.00 | 60.0% | - |
| 10% | $90.00 | $50.00 | 55.6% | +20% |
| 15% | $85.00 | $45.00 | 52.9% | +33% |
| 20% | $80.00 | $40.00 | 50.0% | +50% |
| 25% | $75.00 | $35.00 | 46.7% | +71% |
| 30% | $70.00 | $30.00 | 42.9% | +100% |
| 40% | $60.00 | $20.00 | 33.3% | +200% |
| 50% | $50.00 | $10.00 | 20.0% | +500% |
* "Volume Lift Needed" represents how many more units you must sell at the discounted price to generate the same total profit dollars as you would have at the full price.
Reading the Ladder
The steeper the discount, the harder you have to work to make the same money.
The 'Danger Zone'
Look for the point where 'Volume Lift Needed' exceeds 100%. Doubling your sales volume is incredibly difficult, even with a big sale. Avoid discounts that require this.
Margin Collapse
Notice how quickly Margin % drops compared to the Discount %. A 20% discount might cut your margin in half if your base margins are thin.
Profit per Unit
This is your reality check. If you make $50 normally, and only $5 on sale, you need to sell 10x as many units to break even.
Execution Steps
Enter your product's base selling price (MSRP).
Enter your Cost of Goods Sold (COGS).
The table will automatically calculate the economics for various discount levels (10% to 50%).
Focus on the 'Volume Lift Needed' column. This is the sales increase required just to break even on the discount.
Pro Strategy
- Low margin products (e.g., 20% margin) cannot sustain deep discounts. A 10% sale might wipe out 50% of your profit.
- High margin products (e.g., 80% margin like software) are very resilient to discounting.
- Use this tool to set 'floors' for your sales team. 'Never discount below 20% because we need double the volume to make up for it.'
Core Concepts
Contribution Margin
The selling price per unit minus the variable cost per unit. This is the money available to cover fixed costs and generate profit.
Margin Erosion
The gradual reduction in gross margin due to discounting. A small price cut can have a massive impact on net profit.
Volume Lift
The percentage increase in sales volume required to generate the same total profit dollars at a lower price point.
What is Discount Ladder Calculator?
A Discount Ladder analysis quantifies the trade-off between price and volume. It uses the concept of 'Profit Equivalence' to determine the break-even point of a promotion. By comparing the reduced profit per unit against the necessary volume increase, it exposes the risks of heavy discounting.
Best For
- • Planning Black Friday or Cyber Monday sales.
- • Setting authorized discount limits for sales representatives.
- • Deciding between a 10% vs 20% off coupon for email signups.
Limitations
- • Assumes variable costs (COGS) remain constant (no economies of scale).
- • Does not account for the long-term impact of 'training' customers to wait for sales.
- • Does not factor in inventory holding costs (sometimes it's better to clear space at a loss).
Alternative Methods
Value-Added Promotions
Offering a 'Free Gift' instead of a discount to preserve price integrity.
Loyalty Points
Giving store credit for future purchases instead of immediate cash discounts.
Industry Applications
See how this methodology generates real revenue uplift in different sectors.
Fashion Retailer Clearance
Wanted to run a 30% off sale on jeans with a 40% base margin.
Used the ladder to realize they would need a 300% sales increase to break even.
Hardware Store Price Match
Staff were price-matching aggressive online competitors, eroding profit.
Distributed a 'Discount Card' to staff showing the lift needed. Staff realized a 10% match required 50% more effort.