You launch an offer on your store, orders start coming in, sales go up, and the results look encouraging. However, when reviewing the numbers, you might find that the remaining profit from each sale has decreased, despite the extra effort spent on fulfillment and customer service. The discount that drove the purchases also cut into what each product leaves behind to cover your store's expenses and generate a profit.

Before launching a promotion, you need to know how much of this amount you are conceding, and the sales volume required to offset it. This relationship was among the prominent ideas discussed by Mohammed Al-Omari, a business development and financial performance analysis specialist, in one of Salla's meetups with merchants. Through a simple example, you can see how a limited price discount impacts your bottom line.

The Math | How does a 5% discount eat up half the margin?

Suppose you sell a product for SAR 100, and the variable costs associated with selling it amount to SAR 90—including product cost, packaging, payment gateway fees, any shipping costs you cover, and customer acquisition costs attributed to the sale. You are left with SAR 10 that contributes toward covering fixed expenses, such as subscriptions, rent, and salaries, and then generating a profit.

In this article, we call this remaining amount the contribution margin, which differs from net profit that is calculated after factoring in all other business expenses.

If you offer a 5% discount on the selling price, the customer pays SAR 95. Assuming variable costs remain constant at SAR 90, the contribution margin drops from SAR 10 to just SAR 5.

Here, the discount equals 5% of the price, but it wipes out 50% of the contribution margin. For this reason, you cannot evaluate the impact of an offer by the discount percentage alone; you must compare it to what you were retaining before offering it.

The numbers in this example are illustrative. Some costs may vary with price or sales volume, so make sure to use your store's actual costs when running the numbers.

Breakeven Volume | How much do you need to sell after the discount?

In the previous example, selling 100 units at the original price yields a total contribution margin of SAR 1,000. After the discount, those same 100 units yield only SAR 500. To reach the same previous total, you need to sell 200 units, assuming unit variable costs and fixed overhead remain constant.

You can calculate the required volume like this:

Required volume after discount = Volume before discount × Unit contribution margin before discount ÷ Unit contribution margin after discount

Applying the figures from the example:

100 units × SAR 10 ÷ SAR 5 = 200 units

In other words, you need to double the number of units sold just to maintain the previous total contribution margin. If fulfilling that extra volume incurs additional expenses, such as hiring temporary help, you will also need to account for them when evaluating the promotion's performance.

This calculation provides a clear baseline for your projections: Can the offer actually drive the required increase? Do you have the inventory and operational capacity to fulfill it? If the projected increase falls significantly short, reconsider the discount percentage, the included products, or the overall campaign objective.

The Comparison | Why does discount impact vary across products?

You might offer the same percentage discount on two different products, yet the impact will vary because their contribution margins differ. Suppose both sell for SAR 100, but the variable costs for the first product are SAR 60, while for the second they are SAR 90.

The first product can absorb the discount comfortably, while the second loses half its margin. This makes reviewing your products before running a storewide sale an essential step; a certain discount rate may work well for some items, while eroding most of the margin on others.

Start with the products you plan to include in the offer and calculate the discount's impact on each one. If the cart contains multiple items, evaluate the total order contribution and shared costs to avoid double-counting shipping or customer acquisition costs.

The Objective | When should you accept a lower margin?

You might choose to offer a discount to clear slow-moving inventory, encourage trial of a new product, or acquire first-time customers. In such cases, you can accept a temporary drop in margin for a specific outcome, provided you understand the cost, the limits of that decision, and how you will measure success.

If the goal is clearing inventory, track the volume moved, the cash recovered, and what remains. If the goal is customer acquisition, calculate the acquisition cost post-discount and advertising, then monitor repeat purchase rates. If the goal is increasing the sales contribution toward expenses and profit, compare the total contribution margin during the sale with an equivalent prior period, accounting for variations in ad spend and external factors.

Defining your objective also helps you set the promotion duration and its allocated budget. A campaign that concludes once a clear goal is met is far easier to evaluate than a perpetual discount kept alive simply because orders are flowing.

Alternatives | Is the other offer genuinely less costly?

After calculating the discount's impact, you might consider free shipping, a gift with purchase, or a product bundle. Each option carries a cost that requires the exact same calculation: What will the customer pay? What are the product, fulfillment, and incentive costs? And how much is left for the store?

A free gift may allow you to offer high perceived value at a manageable cost, while a free shipping threshold can tie the perk to a higher average order value. However, the final result hinges on the cost of the gift, shipping fees, and the products the customer actually purchases. Model your numbers on projected cart combinations prior to launch, then review real order data afterward.

After determining your campaign costs, learn how to set up a promotional offer on your Salla store.

Execution | Five questions before launching the promotion

Set up a simple spreadsheet for the included items, noting current price, variable costs, discount amount, and post-discount contribution margin. Then answer the following questions:

What is the goal of the offer? Define the intended outcome, such as liquidating a specific stock volume or boosting total contribution margin.

How much is retained per unit or order? Calculate the remainder after the discount and selling-related expenses.

What sales increase is required to break even on the discount? Benchmark this against realistic performance expectations for your store and marketing campaigns.

Are there extra expenses? Include incremental ad spend and any operational overhead triggered by the promotion, without double counting.

When will you review the results? Establish the campaign duration, key performance metrics, and spend caps.

At the close of the promotion, compare your projections against actual performance: units sold, net sales after discounts and returns, variable costs, and total contribution margin. This review will guide your next promotional decisions based on proven store performance.

Before committing to a discount percentage, write down two numbers next to it: how much you will retain per sale, and how much volume you need to achieve your target. Only then does an increase in orders become a metric you can clearly value.

To master your store costs, breakeven point, and cash flow, learn e-commerce financial fundamentals with Mohammed Al-Omari on Salla Academy.

Watch the Session | Deepen your understanding of discount impact on store profitability

In this Salla session, Mohammed Al-Omari breaks down the dynamics between pricing, costs, discounts, advertising, and cash flow, answering merchant questions on critical financial decisions. The discussion on the impact of discounts on margin begins at minute 19:31 of the recording.

Planning to launch your e-commerce business? Create your store on Salla, and start setting up your products and pricing ready to sell.