Discount Impact Simulator
Quantifies the real impact of offering discounts on margin and profit. Calculates how many additional units must be sold to offset the margin loss from a discount, revealing the true cost of price reductions.
Sales - Discount Impact Simulator.xlsx
Excel (.xlsx) — No macros — Works in Excel, Google Sheets, LibreOffice
What This Spreadsheet Solves
- Discounting without understanding the margin impact
- Reps offering discounts that require unrealistic volume increases to offset
- No framework to evaluate when a discount is worthwhile vs. destructive
- Lack of visibility into how small discounts compound into large profit losses
- Inability to set data-driven discount approval policies
Who This Is For
- Sales managers approving discount requests
- Pricing analysts evaluating promotional offers
- Sales reps understanding the cost of the discounts they offer
- Finance teams modeling the P&L impact of discount policies
Inputs
- $Original Price
- $Variable Cost per Unit
- #Current Unit Volume
- %Proposed Discount
- %Expected Volume Increase
Outputs
- Original Margin per Unit
- Discounted Margin per Unit
- Margin Reduction %
- Additional Units Needed to Break Even
- Volume Increase Required %
- Net Profit Impact (at expected volume increase)
How Calculations Work
Original margin is price minus variable cost. Discounted margin is the reduced price minus variable cost. The break-even volume increase is calculated using the formula: additional units needed = (original total margin) / (discounted margin per unit) - original volume. This shows the exact volume increase required to maintain the same total profit. The net profit impact compares the expected new total profit to the original.
Example Use Case
Scenario: Product at $100, $40 variable cost, selling 500 units/month. Proposed 15% discount. Sales team expects 20% volume increase.
Result: Original margin: $60/unit, total $30K. Discounted price: $85, margin: $45/unit (25% lower). Break-even: 667 units needed (33% volume increase). At 20% increase (600 units): $27K total margin, a $3K/month profit loss. The discount destroys value unless volume increases by at least 33%.
What You Get — 5 Sheets
Technical Details
Frequently Asked Questions
Why does a small discount require such a large volume increase?
Because the discount comes entirely out of margin, not revenue. A 10% price cut on a product with 50% margin eliminates 20% of the margin. You need 25% more volume to compensate.
When is discounting actually worthwhile?
When the expected volume increase exceeds the break-even threshold, when it displaces a competitor, or when customer lifetime value from the discounted deal exceeds the margin loss.
Should I use this for every discount request?
Yes, for any discount above your de minimis threshold (set in CONFIG). It takes 30 seconds and prevents costly margin giveaways.
How do I estimate the expected volume increase from a discount?
Use historical data from past promotions, industry elasticity benchmarks, or test with a small cohort first. Avoid using the sales rep's estimate without validation.
Can I model bundled discounts?
Yes. Enter the blended price and average variable cost for the bundle. The analysis works the same way.
Download Discount Impact Simulator
Ready to use immediately. Enter your data in the INPUT sheet, see results in OUTPUT.