Discount cost calculator
See what a discount really costs once renewals are priced off the lower figure, how much gross profit it gives up, and how much extra volume you'd need to make it back. Check it before you agree to the next "small" discount.
- First-year cost
- First-year price after discount
- Contract value at list
- Gross profit given up
- Extra volume to recover the gross profit
Year by year
What each discount level costs
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Why discounts compound
Volume to recover = discount ÷ (gross margin − discount)
When renewals are priced off what the customer paid last year, the discount becomes the new base. Any price increase is applied to the lower figure, so the gap carries forward every year rather than disappearing after year one.
A 10% discount on a A$100,000 annual contract costs A$10,000 in the first year and A$30,000 over three years. At an 80% gross margin you'd need about 14% more volume just to stand still on gross profit.
Trade, don't give
- Ask what the discount is for. A budget limit, a competing quote and a negotiating habit need different answers.
- Trade price for value. A longer term, payment in advance, a firm signature date, a reference or a reduced scope.
- Concede in shrinking steps. Each concession should be smaller than the last and come with something in return.
- Know your walk-away. Set it before the conversation, along with who can approve each level of discount.
The full approach is in Mutual Action Plans and Negotiating Without Leading With a Discount.
Discounts, answered
How do I calculate the real cost of a discount?
Multiply the annual price by the discount to get the first-year cost, then add the same reduction for every year the customer renews at the discounted price. A 10% discount on a A$100,000 annual contract costs A$10,000 in year one and A$30,000 over three years.
Why does a discount cost more than the first year?
Renewals are usually priced off what the customer paid last year, not your list price. The discount becomes the new base, and any annual price increase is applied to that lower figure, so the gap carries forward every year.
What does priced off the discounted figure mean?
It means each renewal starts from the discounted price. Untick it in the calculator if the discount applies to the first year only and renewals go back to list price, which you'd need to write into the contract.
How much extra volume do I need to make up a discount?
To keep the same gross profit, volume has to rise by the discount divided by the gross margin minus the discount. At an 80% margin, a 10% discount needs about 14% more volume to break even on gross profit.
What should I offer instead of a discount?
Trade price for something of value to you: a longer term, payment in advance, a faster signature date, a case study or reference, or a reduced scope. If you do concede on price, get something in return each time and make each concession smaller than the last.
Rev-IQ New Business BDM Kit
Six AI skills for Claude, ChatGPT and Perplexity, including Proposal and Negotiation Prep: set target and walk-away prices, cost every option over the term, build the tradeables and check the concession log.