A discount can increase conversion and still make a sale less profitable.
That is why the right question is not “What discount will get more orders?”
It is:
“How much discount can I afford before the incremental order stops making economic sense?”
Start with contribution margin
A simple contribution-margin view is:
Contribution before discount = selling price − product cost − payment fees − variable fulfilment/shipping costs
The exact cost definition should match the merchant's internal P&L.
Suppose a product sells for ₹2,000 and the contribution before the promotion is ₹800.
A 10% discount removes ₹200.
Contribution after the discount becomes ₹600.
That does not automatically make the promotion bad. The discount may generate orders that would not otherwise happen.
The important question is whether the incremental demand compensates for the contribution you gave away.
The mistake merchants make
Many stores compare revenue before and after a promotion.
That can be misleading.
If 100 customers would have purchased anyway, discounting those 100 orders simply transfers margin from the brand to the customer.
If the promotion creates 30 genuinely incremental customers, the economics can be very different.
So the analysis needs two layers:
- Unit economics — what happens to each order?
- Incrementality — how many additional orders did the promotion create?
Model three discount levels
Before launching a campaign, model at least three scenarios.
For example:
- 5% discount
- 10% discount
- 15% discount
For each scenario calculate:
- discount value per order
- contribution after discount
- expected orders
- expected incremental orders
- total discount cost
- expected contribution
This makes the trade-off visible before the campaign is live.
Example
Imagine:
AOV = ₹2,000
Contribution before discount = ₹800
At 5%, the discount is ₹100 and contribution becomes ₹700.
At 10%, the discount is ₹200 and contribution becomes ₹600.
At 15%, the discount is ₹300 and contribution becomes ₹500.
The 15% promotion is not automatically worse.
If it creates materially more incremental orders, it may outperform the smaller offer.
But if most orders would have happened anyway, the additional discount is simply margin leakage.
Don't ignore repeat purchase
A first order can be evaluated differently if the customer has a strong history of repeat purchases.
But avoid using a theoretical LTV number to justify every promotion.
Use historical cohorts when possible.
Compare customers acquired through discounted orders with customers acquired without discounts.
Look at:
- second-order rate
- time to second order
- repeat AOV
- refund/return behaviour
- contribution over 60/90/180 days
If discount-acquired customers have materially weaker economics, your real promotion cost is higher than the headline discount.
Build a break-even view
A useful planning question is:
“How many additional orders do I need for this promotion to pay for itself?”
Start with the contribution you give up on existing demand.
Then estimate the contribution generated by incremental orders.
This produces a much more useful decision than “10% is normal.”
Use the calculator before launch
Referbro's Discount Profitability Calculator is designed for this exact pre-launch analysis. It evaluates profitability across discount tiers so a merchant can see the effect before publishing the campaign.
The goal is not to stop discounting.
It is to make discounting an economic decision instead of a guess.
Final checklist
Before launching a discount, ask:
- What is contribution before the offer?
- What is contribution after the offer?
- How many orders would happen without it?
- How many incremental orders do we need?
- Does the offer change AOV?
- Does it change repeat purchase?
- Can it stack with another promotion?
- Are high-intent customers receiving the offer anyway?
A discount is a growth lever.
Treat it like one.