The Real Impact of Giving Discounts

As a consumer, we all love to receive discounts when we purchase. The same goes when buying goods or services for our company.

But discounts have a strong impact on the business and its Gross Profit (also called ‘Gross Margin’):

  • Discounts received trigger:
    • Increase in Gross Profit
    • Increase in Profit before Tax
  • Discounts given can trigger:
    • Loss or Revenue
    • Loss of Gross Profit
    • Decrease of Profit before Tax

So if you intend to give a discount to your customers, the question becomes: How much increase in Revenue do I need, in order to maintain the Gross Profit in $ value?

The answer is in the following formula:

= [(Gross Profit ratio / (Gross Profit ratio – % Discount given)) – 1] x 100

If it sounds complicated, here is a table with all calculations already done: Read more