Tobi, an online shop owner, posted: "20% OFF EVERYTHING."
2 hours later, 34 orders. DMs from excited customers.
She was so happy.
The orders were coming in.
So she checked her account balance.
But the money didn't look right.
Before the discount, she was making $400 on every item sold.
Now she's making $200 after the discount
What went wrong?
There's a simple calculation business owners tend to miss before offering a discount
This calculation tells you how many extra items you'll need to sell when a lower price reduces your profit.
In business management, we describe this as "break-even calculation".
The explanation is simple: if you reduce your price on each item you sell, then you'll need more sales to continue making your normal profit.
So how do you know how many extra items you need to sell?
Here's a fix you can try:
Find your normal profit before discount.
Calculate your new expected profit after discount.
Divide your normal profit by your new profit.
That's how many more items you'll need to sell to maintain your profit.
Example:
Step 1]
Your selling price = $1,000
Your cost = $600
Normal Profit (before discount) = $400
Step 2]
20% discount means = $200 off
New selling price = $800
Cost (this didn't change) = $600
Your new expected profit (after discount) = $200
Step 3]
Now divide your normal profit by your new profit. That means:
$400 divided by $200 = 2
Conclusion: You'll need to sell 2x your usual number of sales, for you to maintain your normal profit.
If you're not sure how to calculate your discount and profit, ask me. I'll share an idea.