Margin With Discount Calculator

Created by Mateusz Mucha and Tibor Pál, PhD candidate
Reviewed by Jack Bowater
Based on research by
Brigham, E.F.; Ehrhardt, M.C. Financial Management: Theory and Practice (2016)
Last updated: Jan 19, 2023

This calculator combines two common problems - your desire to calculate your profit margin or markup while giving the customer a discount at the same time. You can check out our markup calculator, discount calculator and margin calculator to understand more on this topic.

The base margin, base markup and base revenue values are all of these values before the discount is taken into account. The discount is applied to base revenue and results in discounted revenue. The true margin and true markup fields show your real margin and markup, after the discount has been considered. Let's take an example scenario:

You buy blue jeans at $60 a piece. Usually, you work with a 40% gross margin, so it gives you a sale price of $100 (remember, margin is a ratio of profit to revenue, while markup is a ratio of profit to cost). This would give you a $40 profit, but a customer wants to make a really big order and you're willing to lower your price by 20% and sell it for $80. All things considered, your true gross margin is 25%.

As for most of our calculators, you may solve for any value - for example, you may start with the profit field and work your way up to find out the maximum you may pay your supplier (the cost).

How do I calculate margin after discount?

To compute the new margin after you've offered a discount:

  1. Write down the original margin m and the discount d.
  2. Compute the difference m - d.
  3. Compute the difference 1 - d.
  4. Divide the number from Step 2 by that from Step 3.
  5. The result is the new margin.

What is the formula for margin after discount?

The formula expressing the new margin after you've applied a discount is:

new margin = (old margin - discount) / (1 - discount),

where all three variables are assumed to be expressed as decimals.


How do discounts affect margin?

Offering discounts lower your margin. However, discounts can attract new customers and increase your sales. They also help when you want to free up space by clearing old stock. Plan the discounts carefully so that, in the end, you increase your revenue.

How does a 10% discount affect the margin of 20%?

The margin goes down to around 11%, so it's almost halved. To arrive at this answer, recall the formula new margin = (old margin - discount) / (1 - discount). Plugging in the data, we obtain: new margin = (0.2 - 0.1) / (1 - 0.1) = 0.1 / 0.9 = 0.1111....

Mateusz Mucha and Tibor Pál, PhD candidate
Cost before discount
Base margin
Base markup
Base revenue
How much discount is being applied?
How the discount affects you:
Price after discount
True margin
True markup
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