What does a discount really cost?

A price cut doesn't come out of revenue — it comes straight out of marginWhat one sale leaves over after its own variable cost: price minus unit cost. A discount is subtracted entirely from this margin, not from the whole price, which is why a small cut eats a big share of it., the slice you actually keep. So a modest discount can demand a startling jump in volume just to stand still — and the thinner your margin, the worse the deal. This is the break-even question turned on the price instead of the fixed costs.

The price move
Each unit sells for€and costs€to make.
Cut the price by% — to €45.
+20%volume just to break even
€25margin / unit after
1.2×volume needed
2×break-even elasticityThe price elasticity of demand at which profit is unchanged. For a cut, demand must beat this for the discount to pay; for a raise, demand must stay under it.
ManageableCutting the price 10% shaves the margin from €30 to €25 a unit — so you must sell 20% more just to make the same profit. Demand has to be more elasticPrice elasticity of demand: the percent change in units sold for each percent change in price. Above the break-even elasticity, the extra volume more than pays for the thinner margin; below it, the discount loses money. than 2× for the discount to pay.
Volume needed vs. discount depth
20%40%
0%5%10%15%18% cut

The curve bends up sharply as the discount approaches the 60% margin: cut all the way to cost and no volume on earth breaks even. That steepness is the whole warning — a 10-point discount on a thin margin can ask for a doubling of sales.

Discount → volume to break even
DiscountVolume needed
5%
+9.1%1.09×
10%now
+20%1.2×
15%
+33.3%1.33×
20%
+50%1.5×
30%
+100%2×
40%
+200%3×

Same product, same €30 margin — only the size of the price move changes. Notice how fast the required volume climbs: discounts are far more expensive than they feel. Click a row to load it.

break-even volume = discount ÷ (margin − discount)