Hiring guide
Before approving a discount: calculate the sales needed to recover it
By CFO Index · Published
A 10% price cut does not mean a 10% reduction in the amount left to cover overhead. The effect depends on costs and how many additional sales the offer creates. Ask your fractional CFO for a comparison against the sales you would expect without the discount, not just a higher revenue target.
Use a credible no-discount baseline
Define the product, customers, period and normal expected volume. Use an achievable selling price rather than a list price nobody pays. Separate customers who would buy anyway from genuinely additional demand. If the promotion brings next month's orders forward, extend the comparison into that month. Otherwise the model can count a timing shift as growth while hiding the weaker period that follows.
State which costs change with each sale
For this decision, define unit contribution as net selling price less the variable costs included in the model. Identify product cost, fulfilment, payment charges, sales commission and expected returns where relevant; avoid counting a cost twice. Keep campaign setup and other incremental fixed costs separate. The SBA's break-even guide uses price less variable cost in its unit calculation. This is a useful starting relationship, not proof that a particular offer covers all company costs.
A 10% price cut can require a third more sales
Hypothetical one-product example: normal price is €100, variable cost is €60 and expected sales are 1,000 units. The proposed price is €90. Costs per unit stay unchanged; the example excludes tax and assumes every unit sold has the same cost and no returns. Contribution falls from €40 to €30 per unit, a 25% reduction. The numbers below are illustrative, not pricing benchmarks.
| Measure | No discount | 10% discount, same volume | 10% discount, 1,334 units |
|---|---|---|---|
| Units sold | 1,000 | 1,000 | 1,334 |
| Revenue | 100,000 | 90,000 | 120,060 |
| Variable costs | 60,000 | 60,000 | 80,040 |
| Contribution before campaign and overhead | 40,000 | 30,000 | 40,020 |
Calculate the recovery hurdle, then test capacity
To retain €40,000 contribution with €30 per unit requires 40,000 ÷ 30 = 1,333.33 units, rounded up to 1,334 whole units. That is 334 additional sales, not 100. If the campaign also costs €2,000, the requirement becomes (40,000 + 2,000) ÷ 30 = 1,400 units. This is a contribution-recovery hurdle, not the company's full break-even point. It assumes the baseline, cost behaviour and product mix remain valid.
Do not approve a volume the business cannot deliver
Continue the example with a confirmed capacity ceiling of 1,200 units. At the discounted price, contribution is €36,000 before the €2,000 campaign cost and €34,000 after it: €6,000 below the baseline. A forecast of 1,400 units does not remove that constraint. Ask operations whether capacity can change and at what extra cost. If discounted orders displace normal-price orders, show the lost contribution explicitly. Model overtime, subcontracting or higher freight separately rather than keeping the original unit cost by habit.
Put boundaries around the offer
An approval note should name eligible customers, products, start and end dates, the maximum discount, stock or capacity allocated and who can grant exceptions. Include the forecast collection dates: higher contribution is not the same as enough cash before suppliers are paid. Record the evidence for additional demand and show a lower-volume case. If the purpose is stock clearance or customer retention rather than contribution recovery, state that objective and its acceptable cost instead of changing the model to make the offer look profitable.
Review the result against the original decision
Keep the approved baseline and compare actual units, realised prices, returns, variable costs and campaign spending after the relevant sales and return window. Explain the differences separately. Ask the CFO to hand over the assumptions, recovery calculation, capacity check and dated review. Management can then decide whether to repeat, narrow or stop the offer using the same definition of contribution that supported the initial approval.