How it's calculated
- Discounted price = price × (1 − discount)
- Margin per order = price + shipping charged − unit cost − pick and pack − packaging − label − card fees − refund reserve, at each price
- Lift to break even = margin at full price ÷ margin at the discount − 1
- Profit per visitor = margin per order × conversion rate
Every figure on this page comes from Offer Suite's own margin engine, the same code the product uses to forecast each offer's and option's profit and to compute realized margin on orders. Money is computed in whole cents.
Worked example
A bag of coffee sells at $40.00 and keeps $15.36 after its cost, fulfilment, the label, card fees and refunds. Take 15% off and it sells at $34.00. The bag, the pick and the label cost what they did, so the order now keeps $9.83: the discount took $5.53 of the $15.36.
At 3.0% conversion the page earned $0.46 per visitor at full price and earns $0.29 at the discount. To get back to $0.46, the discount has to bring 56.3% more buyers. At 50.0% off the order keeps −$3.06, and no number of extra buyers makes that up.
Assumptions
- The discount changes the price and nothing else: the same product, parcel and costs. Card fees and the refund reserve fall a little with the price, which the figures include.
- Every buyer pays the discounted price, including the ones who would have bought at full price.
- The comparison is on the first order. A discount that brings buyers who come back is worth more than this shows; the subscription calculators follow later orders.
- Pick and pack $1.18 per order and $0.20 for each extra item are the defaults of the engine's DTC-US profile, a typical third-party warehouse contract. Use your own contract.
- The shipping label ($7.50) is an assumption for a domestic ground parcel of about a pound. Your carrier account or shipping app has your rate.
- Card processing of 2.9% + $0.30 is Shopify Payments' online rate for a standard card on the Basic plan in the United States. The Shopify Payments fees pages list every plan and country; enter yours.
- The refund reserve (5%) is a share of revenue set aside for refunds. Cost is not reduced by a refund, because the goods were already picked and shipped.
Questions
How do I calculate the break-even point of a discount?
Work out what one order keeps at full price and at the discounted price, with every cost in. Divide the first by the second and subtract one: that is how many more orders the discount has to bring for the same profit.
Why does a small discount need such a large lift?
Because the discount is taken from the part of the price you keep. With the defaults on this page a $40.00 order keeps $15.36; 15% off removes $6.00 of price and leaves $9.83, so the discount needs 56% more buyers to earn the same.
Is the usual formula, discount ÷ (margin − discount), wrong?
It is right for the margin it is given, and it is usually given gross margin. Shipping, pick and pack and the card's fixed fee do not shrink with the price, so the margin that matters is the contribution margin per order. Using gross margin understates the lift.
What discount can never pay for itself?
One that leaves the order keeping nothing. No number of extra buyers earns back a loss on each of them, and the table marks those discounts.