Companion to "Discount Discipline."
Discounts are asymmetric: they come off your margin, not off your costs, so a small discount is a large bite. The break-even question is always: how much more must I sell to make the same money?
Worked rows as taught. Fill the last two columns with your own gross margin: your margin, then the volume increase a 10% and a 20% discount would demand at that margin.
| Your margin | Discount | You must sell | to break even | Your margin: 10% off | Your margin: 20% off |
|---|---|---|---|---|---|
| 50% | 10% off | 25% more | plus a quarter | % margin: must sell % more | % margin: must sell % more |
| 30% | 10% off | 50% more | plus half | ||
| 40% | 20% off | 100% more | double | ||
| 30% | 20% off | 200% more | triple |
Worked example behind the middle rows: at thirty cents margin on the dollar, a ten percent cut drops the margin to twenty cents; twenty is two-thirds of thirty, so you need one and a half times the volume just to stand still. A retail operator's dollar version: at a forty percent margin, a twenty percent sale cuts per-unit profit in half and means selling twice as much to stay even.
A discount you did not plan is a price cut you have to earn back with your calendar. Since your calendar is the one asset you cannot expand at will, unplanned discounts are the most expensive generosity in the trades.
You cannot sell triple volume. Your inventory is hours. The extra jobs a discount wins are hours you would eventually sell anyway at full price, sold early, at a worse rate. A service discount is usually a raise you owe yourself later, with interest.
| Scope of the work (remove a piece until the number is honest; the rate never moved) | ☐ pulled first |
| Schedule of the work (longer timeline, off-peak or fill-in slot, bounded by a calendar) | ☐ pulled second |
| Terms of payment | ☐ pulled third |
| Tool: a discount you chose, for a purpose, with a shape and an end date (the four honest ones: scope reduction, frequency pricing, off-peak or fill-in, referral and loyalty thanks applied after the fact) | ☐ name: ends |
| Confession: a discount that chose you, from fear (first-customer panic, haggling response, friends and family forever, desperation season pricing) | ☐ rejected |
If a proposed discount cannot name what it buys, it is not a tool.