1. Why permanent discounts are needed

A permanent discount on a subscription is not just a price reduction, but a full-fledged business promotion tool. A properly calculated discount brings a company several advantages at once:

1. Attracting customers — a discount draws the attention of potential customers and becomes an incentive to make a purchase — especially in a competitive environment, where companies compete for attention and customer loyalty.

2. Increasing sales volume — customers are more willing to buy more goods or services when they see a favorable offer.

3. Getting rid of excess stock — discounts help quickly sell off goods or services that have accumulated in the warehouse or in the assortment, and avoid storage costs and losses from product obsolescence.

4. Promoting new goods or services — a discount helps bring a new product to market, attract the first customers, and generate interest in the innovation.

5. Increasing customer loyalty — permanent favorable offers foster brand loyalty — customers who receive consistent value are less likely to switch to competitors.

6. Marketing strategy — discounts become part of the overall promotion strategy, helping attract attention to the brand and create a positive company image.

7. Competitive advantage — offering better terms than competitors helps attract customers and increase market share.

At the same time, the discount must be tangible to the buyer. A 5% discount on the purchase of an apartment is a considerable sum, whereas the same discount on a bottle of soda water is unlikely to attract buyers — it is simply too small to notice.

2. How to calculate the margin of a product

Before determining the size of a discount, you need to calculate the margin of the product or service.

Margin is the share of profit in total revenue. The higher the margin, the more you earn from each sale.

Margin = (Selling Price − Cost Price) / Selling Price × 100%

Example

You manufacture leather slippers. The cost of producing one pair is $50, and the selling price is $100.

Margin = (100 − 50) / 100 × 100% = 50%

Important: the size of the discount must not exceed the product's margin, otherwise you will be selling at a loss and will not make a profit. If you set a 70% discount on the slippers, you will not only fail to earn anything, but will not even recover their cost price.

3. How to calculate the effectiveness of a discount

A discount should stimulate sales and bring additional income. To understand in advance how much product needs to be sold at a discount to come out ahead, calculate the break-even point.

Break-even point

This is the sales volume that maintains the previous level of income but does not yet bring in any additional income. Sales above this point form additional profit from the discount — it is against this point that the effectiveness of a promotion is measured.

First, calculate the discount losses:

Discount losses = Discount / Margin

Then, calculate the required increase in sales volume needed to compensate for these losses:

Required increase in sales volume = Discount losses / (100% − Discount losses) × 100%

Example

You decide to offer a 15% discount on each pair of slippers (margin — 50%).

Discount losses = 15% / 50% × 100 = 30%

Required increase in sales volume = 30% / (100% − 30%) × 100 = 42%

To reach your original profit level, sales volume needs to increase by 42%. If you normally sell 100 pairs, you will need to sell 142. Everything sold above this figure will bring additional profit.

4. ABC analysis: which products to discount

ABC analysis is a method for classifying a company's resources (goods, services, customers, budget) by their level of importance to the business. It is based on the well-known Pareto principle, or the 80/20 rule: 20% of the effort or investment produces 80% of the result.

According to this principle, all products can be divided into three groups:

— Group A — 20% of products, which generate 80% of the profit. This is the most valuable segment, and it is where you should concentrate your main attention.

— Group B — 30% of products, which generate 15% of the profit.

— Group C — the remaining 50% of products, which generate only 5% of the profit.

ABC analysis helps you understand which specific items are most worthwhile to discount. To do this, you need to compare the margin and demand for each item in your price list.

Step 1. Assess the margin of your products

Important: margin, calculated using the formula above, mathematically cannot exceed 100% — even at zero cost price, it only approaches this value. Therefore, all three groups fall within the range of 0 to 100%:

— Low margin — up to 20%.

— Medium margin — from 20% to 50%.

— High margin — more than 50%.

Do not confuse margin with markup. Markup is calculated relative to the cost price — (Selling Price − Cost Price) / Cost Price × 100% — and can exceed 100% (for example, with a cost price of $50 and a selling price of $150, the markup would be 200%, while the margin would be only 66.7%). This guide uses margin specifically to calculate discounts, since it directly shows the share of profit within revenue.

Step 2. Assess the demand for your products

— Frequently purchased.

— Moderately purchased.

— Rarely purchased.

Step 3. Compare margin and demand

It is most advantageous to offer discounts on medium- and high-margin products that are rarely purchased. This way, you will sell more items with a markup of 100% or higher, while the discount will not eat into a significant portion of your overall revenue — because demand for these products is inherently low.

Example

You sell leather goods and want to determine which items are best to discount. The easiest way is to list the products in a table according to the ratio of margin and purchase frequency.

In this example, it is best to offer a discount on clutches and wallets. These products already generate a lot of profit, and lowering the price by 10–20% will not affect overall revenue, because demand for them is lower than for the other items.

5. In short: how to choose a discount size for a subscription

— Calculate the margin of the product or service — the discount must never exceed it.

— Make sure the discount is tangible to the buyer — a discount that is too small will not motivate a purchase.

— Calculate the break-even point and the required sales increase, so you understand when the promotion will start generating additional profit.

— Conduct an ABC analysis of your product range, and offer discounts primarily on medium- and high-margin products with low demand.

— Periodically review your discount size — margin and demand can change over time.