A discount can increase orders while reducing what the business keeps. The missing link is contribution per sale: price minus the variable cost attributable to that sale. HBW-005 uses one fictional product to make the trade-off visible.
Follow the money per order
Suppose the product sells for $100 and costs $60 per order to supply and fulfil. Each order contributes $40 before fixed costs. At 100 orders, revenue is $10,000 and total contribution is $4,000. After $3,000 of illustrative fixed operating costs, simplified operating profit is $1,000.
Now cut the price by 20%, to $80, and sell 150 orders. Variable cost stays at $60, so each order contributes only $20. Revenue rises to $12,000, but total contribution falls to $3,000. With the same fixed costs, simplified operating profit falls to zero.
| Fictional single-product period | Original offer | Discounted offer |
|---|---|---|
| Orders | 100 | 150 |
| Price | $100 | $80 |
| Variable cost per order | $60 | $60 |
| Contribution per order | $40 | $20 |
| Revenue | $10,000 | $12,000 |
| Total contribution | $4,000 | $3,000 |
| Fixed operating costs | $3,000 | $3,000 |
| Simplified operating profit | $1,000 | $0 |
Calculate the volume the discount needs
To preserve $4,000 of contribution at $20 per order, the business needs 200 orders. That is twice the original volume. This threshold is arithmetic, not a forecast that customers will buy twice as much.
An incremental acquired customer may also have an acquisition cost. At the discounted price, a separate illustrative first-order calculation with $8 of attributable acquisition cost leaves $80 − $60 − $8 = $12 before fixed costs. Do not apply that $8 to customers who arrived organically, or assume future repeat purchases without evidence.
A discount is a hypothesis
The price cut can work if the additional demand, cost changes, retention or another explicit objective justify it. Test the customer response and contribution together. Define whether the offer applies to new customers, existing customers or both, and check whether it shifts purchases that would have happened anyway.
The useful question is not whether orders grew. It is whether the complete economics improved over the period that matters.
Sources and qualifications
The SBA break-even guide distinguishes fixed and variable costs and explains the break-even calculation. HBS Online's margin guide explains why margins need careful labels. All amounts above are fictional, for one product and one period with stable unit variable cost. Taxes, interest, inventory timing and product mix are excluded. Contribution is not net profit.