Before offering 20% off: calculate the sales your holiday discount must earn
A practical holiday pricing worksheet for small businesses: contribution per sale, extra orders required, capacity limits and a clear stop rule.
Share this guide
A discount changes the work required, not just the price
A busy holiday promotion can leave an owner with more orders and less money available to run the business. Before designing a Black Friday graphic, work out what each discounted sale leaves after the costs caused by fulfilling it. Then ask whether the extra sales needed are plausible with the people, inventory and cash you actually have.
This is a planning guide, not a claim that discounts are always a mistake. An offer can be useful for filling unused capacity, moving selected stock or testing a customer segment. The problem is approving a discount from the revenue line alone. BGA's worksheet below makes the hurdle visible before you commit.
Write down three numbers for one specific offer
Use the normal selling price, the proposed promotional price and the variable cost per sale. Variable costs are the costs that change with an additional order: materials, packaging, shipping you pay, transaction charges, commissions and additional delivery labor where applicable. Use your own records. A salaried employee's time may not create extra payroll on one job, but that employee can still become a capacity constraint.
Contribution per sale equals selling price minus variable cost per sale. It is money available toward fixed costs and profit; it is not net profit. The SBA and Iowa State Extension explain the underlying break-even approach using price, variable costs and fixed costs. BGA applies that framework here to a short promotion. Keep the cost period consistent, and separate per-order costs from campaign setup costs.
Worked example: 20% off can require twice as many orders
Assumptions for illustration only: a business normally charges $100, incurs $60 of variable cost per order and expects 50 orders without a promotion. Normal contribution is $40 per order, so those 50 orders provide $2,000 before fixed costs. These are invented planning inputs, not a real business's results or a forecast.
At 10% off, the price is $90 and contribution is $30. Matching $2,000 requires 66.67 orders, rounded up to 67. At 20% off, the price is $80 and contribution is $20: 100 orders are needed. At 30% off, the price is $70 and contribution is $10: 200 orders are needed. The variable cost stays $60 in this simplified example.
The reusable calculation is target contribution divided by promotional contribution per order, rounded up. For a comparison with normal trading, target contribution starts with expected normal orders multiplied by normal contribution per order. A 20% reduction in price has halved contribution in this example. If the promotional price is no higher than variable cost, additional volume cannot cover fixed costs under these assumptions.
Add the costs and displaced sales that the simple example leaves out
Suppose the 20%-off campaign also requires $300 of advertising and $200 of temporary setup costs. To preserve the original $2,000 contribution after those additional campaign costs, the target becomes $2,500. At $20 per discounted order, that requires 125 orders. Do not add these costs again if they were already included in your per-order calculation.
Now check which orders are actually additional. If existing customers would have bought at the normal price but switch to the promotion, their discount consumes contribution without necessarily adding demand. Compare the whole promotional period with a reasonable no-promotion baseline, not just a campaign code's sales total. Keep the baseline labeled as an estimate and record how you chose it.
Returns, rework, failed deliveries and overtime can change the result. If payment processing is percentage-based, recalculate its dollar amount at the promotional price. If delivery costs increase with distance or volume, one average may hide an unprofitable segment. Run a cautious case with lower demand and higher fulfillment cost before deciding.
Test capacity and cash before approving the campaign
The 125-order hurdle is only useful if the business can fulfill 125 orders properly. Write down the limiting resource: appointments, technician hours, production slots, stock, vehicle capacity or customer support. Estimate the time required at the proposed volume and reserve room for problems. More bookings are not a win if they displace better work or create avoidable refunds.
Cash timing needs a separate check. Contribution is not a bank balance. Inventory and advertising may be paid before customer receipts arrive, and collected cash may be needed for refunds or future fulfillment. List the dates of major outflows and expected receipts. Ask a qualified adviser about accounting, tax or customer-payment obligations that apply to your offer.
Choose an offer that matches the constraint
If demand is weak but capacity is available, a limited trial offer may be worth testing. If capacity is already tight, consider a smaller discount, a clearly defined bundle or a benefit with a known incremental cost. A bundle still needs its own contribution calculation; adding low-cost items does not automatically create value for a customer.
Put the decision on one page: audience, offer, normal price, promotional price, variable cost, campaign cost, expected normal orders, required promotional orders, capacity and cash gap. Set a review date and stop rule before launch. For example, stop accepting the offer when its reserved appointment slots are filled, rather than promising unlimited availability.
Measure the result after fulfillment
Record inquiries, accepted orders, completed orders, refunds and contribution separately. Compare actual costs with the worksheet and explain the differences. A campaign that missed its sales target may still teach you something useful; a campaign that met it may still have damaged margin.
Use BGA's related quote follow-up playbook to improve conversion before assuming that a deeper discount is necessary. The next action is small: calculate one offer from actual cost records, challenge the volume hurdle, and approve a bounded test only when the business can afford to fulfill it.
Original sources
Share this guide