Defining the ‘margin with discount’ calculator
Let us first have a look at what profit margin is before we proceed to our real area of focus.
Profit margin is a ratio used by companies to determine profitability. It shows the percentage of sales that
have been converted to profits.
For example, if a company has a profit margin of 20%, this means it generated $0.2 of profit for every
a dollar of sales.
The profit margin with discount
Let’s say you’ve bought multiple items for $8 each. You’re wishing to sell each item for $10, which means
you’ll be making a profit of 20% (2 out of 10 dollars).
At some point, you wish to offer a discount of 10% and sell the items at $9 each. This means you’re
making a lesser profit per item, but you still obviously want to hit your profit margin.
This is where our ‘margin with discount’ calculator comes in…
Our ‘profit margin with discount’ calculator will help you calculate profit margin when you’re offering a
discount, which is more complex than the relatively simple calculation of profit margin alone.
Profit margin and discount – what’s the relation?
When you offer discounts on your products, the straightforward reaction is a reduction in profit margin.
However, that’s now how discounts work.
The purpose of discounts is partly to attract more customers and build a stronger relationship, and for the
most part, they aim at increasing unit sales. This in turn increases the income and revenue of the
company. Therefore, the profit margin that we assumed would decrease now rises again.
Margin and discount formula
To calculate the profit margin with discount, you first have to find the discounted profit. This can be found
using the following formula:
Next, find the percentage discount using the discount found above.
Then, you have to find a discounted profit margin. You will do this by first finding the discounted gross
Then, you will utilize this gross discounted profit in the following formula:
And the answer obtained will be the profit percentage as a percentage.
How to calculate margin with discount
If you’re manually calculating margin with a discount using the formulas provided, you need to understand
the fields required first. In this regard, here is a description of each:
Discount is the amount of money reduced from the usual price of a product.
This is the price quite literally ‘marked’ on a product. This is also the cost at which the business aims to
sell the product.
Also known as market price, this is the price at which a product is actually sold. It is usually equal to the
marked price, but when discounts are offered, the selling price is less than the marked price by the
decided discount percentage.
This is the discount shown as a percentage of the marked price.
Revenue is the income of a company or firm.
Calculating margin with discount can be a tricky thing to do, but our margin with discount calculator has
you covered. In other words, our calculator will help solve two problems together – calculating margin
while also considering discounts offered at the same time. If you wish, you can also calculate profit
margin with a discount using the formulas provided above!