Pricing and margin
What discount can you offer without losing money?
Twenty per cent off sounds modest until you see what it does to a thin margin. The arithmetic, and the floor an offer is refused at.
How MarketWar handles it
Every margin is real arithmetic on the price, cost and stock YOU supply — and an offer is REFUSED outright when its discounted margin would fall below a 20% floor, or when a stock-dependent offer has no stock behind it. It never generates an offer that sells below cost. Demand lift is the only guessed quantity in the engine and it is always labelled an estimate, because it is the one number nobody can know in advance.
Discounting is the fastest lever in retail and the least understood, because the number you choose is a percentage of the wrong thing.
Twenty per cent off is a fifth off the price. On a thin margin it is most of the profit.
The arithmetic, on a real item
Say you sell something for £100 and it costs you £70. Your margin is £30.
Take 20% off: you now sell at £80 and it still costs £70. Your margin is £10. A fifth off the price was two thirds off the profit.
So to make the same money as before you need three times the volume. Not a bit more — three times. That is the question to ask before any promotion: not "will this sell more", but "will it sell three times more".
The floor, and why it refuses rather than warns
An offer whose discounted margin would fall below 20% is refused. Not flagged, not allowed with a confirmation.
The reason is behavioural rather than mathematical. A warning appears at the moment somebody has already decided to run the promotion, usually under time pressure, and it gets clicked past. The whole value of a limit is that it holds when you least want it to.
And no priced offer is ever generated below cost. That sounds obvious until you have seen a bundle built by combining three discounts that were each individually sensible.
Eleven shapes, because the discount is often the wrong tool
There are eleven archetypes available — core, entry, bundle, free trial, lead magnet, limited time, referral, upsell, cross-sell, retention and win-back — and most of them cost you less than a straight discount for the same effect:
- A bundle raises the order value instead of lowering the price, so the margin percentage falls while the cash margin rises.
- An upsell or cross-sell earns more from somebody already buying, which is the cheapest revenue there is.
- A win-back goes to people who already bought once, where the acquisition cost is already paid.
- A lead magnet is costed as acquisition, not as a sale, which is the honest way to account for something free.
A straight percentage off is the blunt option, and it is the one most businesses reach for first because it is the easiest to describe.
Where the stock check comes in
A stock-dependent offer with no stock behind it is refused too. This is a small rule that prevents a specific embarrassment: a limited-time bundle advertised and then unfulfillable, which costs you the margin you were protecting AND the customer.
The one guess, labelled
Demand lift is the only estimated quantity in the engine, and it is always labelled.
Used honestly, it is still useful: rather than believing the projection, invert it. The arithmetic tells you how much extra volume the discount needs to break even. Then you decide whether that is plausible for your business — which you know better than any model does.
The question to ask before any promotion
What does this do to my margin per unit, and how much more volume do I need to stand still?
If a tool shows you the discounted price without showing you that second number, it is helping you spend your margin.
What this does not do
It cannot tell you whether anybody will take the offer. Demand is the guess, and it is labelled as one; what the engine removes is the other half of the risk, which is discovering after the promotion that the maths never worked.
Common questions
Why does 20% off hurt so much?
Because it comes off the price, not the margin. On a £100 item costing you £70, your £30 margin becomes £10 — a fifth off the price is two thirds off the profit.
What is the floor for?
An offer whose discounted margin would fall under 20% is refused rather than flagged, because a promotion that is approved with a warning is a promotion that runs.
Can it offer something free?
A free trial or a lead magnet, yes — those are costed as acquisition rather than as a sale. What it will not do is generate a priced offer that sells below cost.
What about the volume I will gain?
That is the guess, and it is labelled an estimate. The honest way to use it is to ask how much extra volume the discount NEEDS in order to break even, which is arithmetic, and then judge whether that is plausible.
Related
How much can you afford to pay an affiliate?
The arithmetic that sets an affiliate rate: contribution, the margin you protect, and the ceiling above which a sale costs you money.
How do you know when to stop a campaign that is losing money?
The four numbers that decide it, why ROAS on its own is misleading, and what a holdout group tells you that attribution never will.
Do loyalty points actually bring customers back?
Most loyalty schemes discount customers who were coming anyway. What a k-factor honestly estimates, and what a reward is allowed to cost.