Is Rs 100 off or 10 percent off better for my margin?
A flat Rs 100 off hurts cheap products far more than the same offer on expensive ones, while a percentage scales with price, and this post compares both with numbers.
When you plan an offer, there are two natural choices. You can say "Rs 100 off" or you can say "10 percent off". They look similar on a poster, but they affect your margin very differently, depending on the price of the product.
Two products
To compare fairly, take two items with illustrative numbers.
- A small item priced at Rs 400 that costs you Rs 250 in all, leaving Rs 150 profit
- A larger item priced at Rs 1,000 that costs you Rs 600 in all, leaving Rs 400 profit
What Rs 100 off does
On the Rs 400 item, Rs 100 off is 25 percent of the price. The new price is Rs 300. Your cost is still Rs 250. New profit is Rs 50. You lost two thirds of your profit.
On the Rs 1,000 item, Rs 100 off is 10 percent. The new price is Rs 900. Cost is Rs 600. New profit is Rs 300. You lost a quarter of your profit.
Same offer, very different pain.
What 10 percent off does
On the Rs 400 item, 10 percent is Rs 40. New price is Rs 360. Profit is 360 - 250 = Rs 110. You gave up Rs 40 of Rs 150, which is about 27 percent of the profit.
On the Rs 1,000 item, 10 percent is Rs 100. New price is Rs 900. Profit is Rs 300, same as the flat offer. You gave up a quarter.
Side by side
- Cheap item, Rs 100 off, profit falls from Rs 150 to Rs 50
- Cheap item, 10 percent off, profit falls from Rs 150 to Rs 110
- Expensive item, Rs 100 off, profit falls from Rs 400 to Rs 300
- Expensive item, 10 percent off, profit falls from Rs 400 to Rs 300
For the Rs 1,000 item, the two are identical, because Rs 100 is exactly 10 percent of Rs 1,000. For anything cheaper, flat money off is the harsher option. For anything more expensive, a percentage takes more money off than the flat amount.
So which is better for you?
- If you sell a range of prices and want to protect the cheap items, use a percentage. It scales down with the price.
- If your catalogue is mostly expensive items and you want the offer to feel substantial but capped, a flat amount can limit what you give away on your priciest products.
- If most of your products have thin margins, avoid flat offers on the cheapest ones altogether.
Think about how customers read it
A flat Rs 100 off can feel more exciting on a cheaper item because the saving looks big relative to the price. That is exactly why it is dangerous to your margin. Be sure the excitement is worth the cost.
Another option is a minimum order. "Rs 100 off above Rs 1,000" lets the customer feel the saving while keeping your offer to larger baskets. See coupons that actually move stock for more on structuring them.
Before you pick
Work out profit per item at the offer price for each product on the offer. If any item falls near zero, remove it from the offer. And to see how much extra volume you would need to cover the cut, go to extra sales needed to pay for a discount.