The core answer
A discount does not raise profit by itself, and the extra volume needed is larger than most owners expect, because the price cut comes straight out of the per-unit margin while product cost stays the same. The quick test is: required volume increase = discount ÷ (contribution margin per unit − discount), with both values as a percentage of the original price.
Hypothetical example: a product sells at 1,000 baht with a contribution margin of 300 baht (30%). A 10% discount leaves 200 baht per unit, so you must sell 150 units instead of 100 to earn the same 30,000 baht total, a 50% increase. Every number in this guide is a hypothetical example, not real data from any business. Legally, promotions need clear terms, advertising must not mislead consumers, and the discount must not collide with your dealer agreements.
1. What is contribution margin per unit?
It is the selling price minus every variable cost incurred when you sell one more unit, not just the gross margin in the accounts. Include:
- product cost and packaging
- marketplace commission or platform fees, and payment processing fees
- shipping you pay or subsidise
- sales commission
- after-sales service tied to unit volume, such as installation or warranty
Rent, fixed salaries and fixed advertising are excluded because they do not change with units in the short term. If the margin is wrong, every later number is wrong. A related approach appears in the guide on cost per sale.
2. How much more must you sell for 5/10/15/20% discounts?
The table uses the formula above (hypothetical; variable cost per unit held constant). Rows are the original contribution margin, columns the discount. Values are the volume increase needed to keep total contribution unchanged.
| Original margin | 5% off | 10% off | 15% off | 20% off |
|---|---|---|---|---|
| 20% | +33.3% | +100% | +300% | impossible |
| 30% | +20.0% | +50.0% | +100% | +200% |
| 40% | +14.3% | +33.3% | +60.0% | +100% |
| 50% | +11.1% | +25.0% | +42.9% | +66.7% |
Reading it: at a 20% margin, a 10% discount requires doubling volume. If the discount equals or exceeds the margin ("impossible"), no amount of extra volume restores the profit. High-margin businesses can discount more easily, but customers drawn by a discount may not be repeat buyers.
3. How do the numbers change on a marketplace?
Hypothetical example: a marketplace listing at 1,000 baht.
| Item (hypothetical) | Baht per unit |
|---|---|
| Selling price | 1,000 |
| Product cost | −550 |
| Platform commission, 8% of price | −80 |
| Payment fee, 3% of price | −30 |
| Shipping subsidy | −40 |
| Service and packing | −20 |
| Contribution margin | 280 (28%) |
At 10% off (900 baht) the percentage fees fall to 72 and 27, but product cost, shipping and service stay the same. The margin drops to 191 baht, so you need about 46.6% more volume. At 15% off the margin is 146.5 baht and you need about 91.1% more. This is slightly better than the simple formula because percentage fees shrink with the price. Fixed per-order fees or campaign co-funding would make it worse, so read the platform's real terms. See reconciling platform fees and payouts and marketplace versus own website.
4. Hidden costs the formula does not count
- Higher returns. Price-driven buyers change their minds more often; outbound and return shipping are extra costs.
- Customers learn to wait. Frequent discounts train buyers not to pay full price, permanently lowering the reference price.
- Cannibalisation. Customers who would have paid full price also take the discount. Count only the incremental buyers who would not have bought otherwise.
- Dealer complaints. Dealers who bought at full price and see you selling cheaper may demand compensation or stop ordering.
- Sales team incentives. Commission on revenue can push staff to sell on discount regardless of profit. See sales KPI and commission design.
- Stock and cash. More volume needs cash for purchases, and a weaker-than-expected result leaves stock that is harder to sell at the old price.
5. Alternatives to a straight price cut
| Option | Advantage | Watch out |
|---|---|---|
| Bundles | Raises value per order without cutting unit price directly | Calculate the margin of the whole bundle |
| Volume tiers | Discounts only customers who really buy more | State tiers and periods in the quotation |
| Gift instead of discount | Perceived value is high; gift cost is often lower than the equivalent discount | The gift must have real cost and clear terms; say whether it must be returned with the product |
| Targeted discounts (members, existing customers) | Does not reset the market reference price | Check dealer agreements for non-discrimination terms |
| Better after-sales service | Competes on value, not price | See product plus after-sales service |
6. The legal angle: promotions, advertising and prices
Promotion terms to write down: start and end dates, eligible products or models, limits per person or in total, whether it combines with other offers, return terms for promotional items, return of the gift when the product is returned, and any right to change or cancel (which must be disclosed before purchase, not after the order).
Advertising. Section 22 of the Consumer Protection Act B.E. 2522 prohibits advertising statements that are unfair to consumers or may harm society as a whole, and treats false or exaggerated statements, and statements that mislead on material points about the goods or service, as prohibited. Risky examples are an inflated "original price" to make the discount look large, or "up to X% off" when almost no items qualify. Before the material goes out, have someone check the wording and the evidence for the original price.
Price display. The Prices of Goods and Services Act B.E. 2542 gives powers to control certain goods and services, including price display. Controlled goods follow specific notices, so check whether your product is listed.
Dealer agreements. Check for terms on recommended price, price protection, volume rebates, online sales overlapping a dealer's territory, and advance notice of promotions. If you want dealers to join a promotion, record the period, products and compensation method in writing. See expanding with dealers and broker, agent or reseller.
Beware of resale price restrictions. Requiring dealers to resell at or above a set price (resale price maintenance) may carry risk under section 57 of the Trade Competition Act B.E. 2560, which prohibits the unfair use of market power or superior bargaining power and unfair trade conditions that restrict or obstruct another business. The risk depends on market power and the facts. A non-binding recommended price is lower risk. Review the clause before using it.
7. Decision checklist before cutting price
- Calculate the real contribution margin per channel, including platform fees, shipping and commission
- Use the formula to find the required volume increase, and ask whether you have ever sold that much more
- Estimate return rates and hidden costs
- Compare alternatives: bundles, volume tiers, gifts
- Set an end date, a quantity limit and a success measure before starting
- Write the promotion terms and check the advertising text
- Check the dealer agreement and give any agreed notice
- After the promotion, compare actual total contribution with the pre-discount period
8. Common mistakes
- Using accounting gross margin instead of contribution margin per unit, forgetting platform and shipping costs
- Looking at revenue growth, not total contribution
- Discounting so often that the normal price stops selling
- No end date and no quantity limit
- Inflating the "original price" to make the discount look bigger
- Discounting without reading the dealer agreement
- Forcing dealers to resell at one price without checking competition-law risk
- Not stating whether a gift must be returned with a returned product
Further reading
- You Made a Sale, but What Is Left: Calculating Cost per Sale — how to find the per-sale cost used in this formula
- More Work, Less Profit: Which Jobs to Accept — spotting products or jobs that do not pay
- Selling on Several Platforms: Reconciling Fees and Payouts — seeing the real fee per order
- Selling on a Marketplace or Your Own Website — channel effects on margin
- Expanding with Own Branches, Franchise or Distributors — dealer agreement terms
- Designing Sales KPIs and Commission — do not let commission push discounting
A discount pays only when the extra volume it needs is realistic against the contribution margin of each channel, and the promotion has clear terms, honest advertising and no conflict with the dealer agreement.
We help review and draft promotion terms, dealer agreements and rebate or price-protection clauses, and check advertising wording before launch. Call +66 92 254 2045 or send us the details. See also contracts and business documents and business plans.
This guide is published by Suwanvara Law Firm — a Khon Kaen law firm established in 1986. General information only, not legal advice on a specific matter.
