How many extra orders do I need for a festival sale to pay off?

Festival season makes everyone want to run a sale. Customers expect offers, and a banner saying "15 percent off" feels like a safe way to join in. But a discount cuts the profit on every single order, so the sale has to bring enough extra orders to make up the difference. Here is how to find out how many.

The profit you give up

Say your product sells for Rs 600 and costs Rs 300 to make, pack and ship. Normal profit is Rs 300 per unit.

With 15 percent off, the price becomes Rs 510 (Rs 600 minus Rs 90). Your cost does not fall, so profit becomes Rs 510 minus Rs 300, which is Rs 210.

You lost Rs 90 of profit per unit, which is 30 percent of your normal profit. A 15 percent discount takes a 30 percent bite out of profit, because the cost stays fixed.

Units needed to match normal profit

To earn the same total profit you need to sell more units.

• Rs 300 divided by Rs 210 is about 1.43.

You need roughly 43 percent more units. If you usually sell 100 in the period, you must sell about 143 under the sale just to stand still. Selling 120 feels like a win, but your profit is lower than normal.

Add extra spend

Most sales are promoted. Suppose you spend Rs 5,000 more on ads or posts to announce the sale. That spend must also be paid back from the sale's profit.

• Rs 5,000 divided by Rs 210 is about 24 units.

So on top of the 43 extra units, you need about 24 more to recover the promotion. In our example that takes you from 100 to roughly 167 units to match what you would have earned with no sale and no extra spend.

Is that realistic

Ask yourself honestly whether the sale will get you 67 percent more orders. In some seasons festival traffic is high enough that it will. Other times, many buyers would have paid full price and you gave away profit to people who were coming anyway.

Also check stock. You must be able to supply 167 units. If you run out halfway, the sale ends early and you carried the discount on the early sales for nothing. See safety-stock-simple-calculation.

Options that cost less

• A smaller discount, such as 10 percent, needs fewer extra units. how-a-10-percent-discount-hits-profit shows the numbers.
• A free gift instead of a price cut. The gift costs you only its making cost, not its list price. See free-gift-vs-discount-which-costs-less.
• Discount only slow stock, and keep full price on popular items.
• Offer a bundle at a modest saving rather than cutting everything.

Check before you commit

Write these four lines before you announce a sale:

1. Normal profit per unit.
2. Profit per unit after the discount.
3. Units needed to match normal profit, including extra ad spend.
4. Whether you can reasonably expect and supply that many.

If the answer to the last line is no, run a lighter offer. Festivals are a good time to sell, but a sale that makes you busy and poorer is a poor use of the season. For a broader plan around the season, festive-season-selling-a-calendar-for-small-brands may help.