How to work out the real cost of a discount
- Enter the deal's list price and the discount the customer is asking for.
- Enter your gross margin at list price, so the cost of delivering the deal is included, and your commission rate.
- See the price after discount, how much of the deal's profit disappears, how many more deals you would need to make up for it, and the effect on your commission.
Discounts cost more profit than they look
A discount comes straight off the profit, not the revenue. If a deal has a 70% gross margin, a 15% discount does not cut profit by 15%: it cuts it by 15 ÷ 70 ≈ 21%. With a 30% margin, the same discount wipes out half the profit, and the business has to close twice as many deals at that price to earn the same. That is why finance teams push back on discounts that look small to sales.
Good negotiators trade rather than give: a discount in exchange for a multi-year term, payment upfront, a larger volume, a reference or case study, or signing by a date that matters to you. Agree a discount policy in advance, with approval levels for bigger reductions, and track average discount by rep and segment. The "what you get in return" box helps you write that trade into the proposal. Nothing you enter leaves your browser.
How much profit does a 10% discount cost?
10% ÷ gross margin. At a 50% margin, a 10% discount removes 20% of the profit on the deal.
When is discounting worth it?
When you get something valuable in return, such as a longer commitment or faster payment, or when the deal would otherwise be lost and still contributes profit.
How should sales teams control discounting?
Set clear discount bands with approval levels, require a give-get for every discount and review discount levels against win rates.