Pricing & profit guide
How discounts affect your profit
A small discount can make a much bigger difference to your profit than its headline percentage suggests.
Discounts can help attract orders or clear stock, but higher sales do not always mean higher profit. Before changing prices, consider the effect on your costs, sales volume and cash flow. GOV.UK’s pricing guidance explains why these need to be considered together.
What does a 10% discount really cost?
Imagine you buy a product for £70 and sell it for £100. Both figures exclude VAT.
Your gross profit per item is:
£100 − £70 = £30
Offer a 10% discount, and the selling price falls to £90. If the product still costs you £70, your gross profit becomes:
£90 − £70 = £20
The customer saves £10, while your gross profit per item falls by £10—from £30 to £20. That is a 33.3% reduction in gross profit.
Your gross profit margin also falls, from 30% to approximately 22.2%.
These figures measure gross profit before overheads, finance costs and tax.
How many more items would you need to sell?
At your original price, selling 100 items produces:
100 × £30 = £3,000 gross profit
After the 10% discount, you would need to sell 150 items:
150 × £20 = £3,000 gross profit
That means selling 50% more items to earn the same total gross profit, assuming the cost per item stays unchanged.
Here is how other discounts affect the same £100 product with a £70 cost:
| Discount | Selling price | Gross profit per item | Extra items needed to maintain total gross profit |
|---|---|---|---|
| None | £100 | £30 | 0% |
| 5% | £95 | £25 | 20% |
| 10% | £90 | £20 | 50% |
| 15% | £85 | £15 | 100% |
| 20% | £80 | £10 | 200% |
The calculation is:
Required number of items = original number of items × original gross profit per item ÷ discounted gross profit per item
Round up where the result requires part of an item.
In this example, a 30% discount would reduce the selling price to £70, leaving no gross profit. Selling more items at that price would not recover the original gross profit.
Check the wider costs
Before running an offer, consider:
- Demand: Is the extra sales volume realistic?
- Costs: Will extra orders require more staffing, packaging, delivery or advertising?
- Capacity: Can you fulfil those orders without additional expense?
- Cash flow: Will you need to pay for more stock before customers pay you?
Matching the original gross profit does not guarantee the same final profit or cash position. Any additional costs need to be included in your decision. NI Business Info explains how fixed and variable costs affect pricing.
Try your own figures
Use LedgerKit’s free Profit Margin Calculator to compare your prices:
Choose “Discount comparison” and enter your unit cost and original selling price, both excluding VAT.
Enter the discount percentage and how many items you would sell at the original price.
Select Calculate to compare gross profit before and after the discount and see the extra whole items needed to maintain the original total gross profit.
Use a consistent VAT basis for your costs and prices. The calculator rounds the discounted unit price to the nearest penny before comparing gross profit. The worked examples in this guide exclude VAT and assume an unchanged cost per item.