What a discount really costs you and the company
A discount cuts your commission by exactly the discount percentage, and cuts gross margin to 1 − (1 − margin) ÷ (1 − discount). A 15% discount on a 40% margin leaves about 29%, not 25%.
Two formulas, and the second is the one sellers get wrong.
Your commission. If you're paid a rate on the price, commission lost = rate × discount × list price. A 15% discount is a 15% pay cut on that deal, no more and no less.
The company's margin. The cost of delivering the thing doesn't change when the price does. Margin after the discount is 1 − (1 − m) ÷ (1 − d), where m is the margin at list and d the discount. Every point of discount comes straight out of the margin, and the margin is measured against a smaller price.
Gross margin after a discount
| Margin at list | 5% off | 10% off | 15% off | 20% off | 25% off |
|---|---|---|---|---|---|
| 30% | 26% | 22% | 18% | 13% | 7% |
| 40% | 37% | 33% | 29% | 25% | 20% |
| 60% | 58% | 56% | 53% | 50% | 47% |
| 80% | 79% | 78% | 76% | 75% | 73% |
Read across the 30% row: a 25% discount leaves almost nothing. At high software margins the damage is smaller in percentage terms, which is exactly why software discounts get given so casually.
Worked example
A $500,000 deal at 40% margin, 8% commission, 15% off. The customer saves $75,000. Your commission drops from $40,000 to $34,000. The company's margin falls from 40% to 29%, and its gross profit on the deal from $200,000 to $125,000, a 37.5% drop for a 15% discount.
Sources
- The arithmetic on this page needs no source.
Cite this page: QuotaBird, "What a discount really costs you and the company," quotabird.com/math/discount-math/ (updated 2026-10).
