Promotions AND DISCOUNTS:
A Double-Edged Sword
Peter was thrilled. His fresh food subscription box had crossed $500,000 in revenue.
Customers were buying. Ads were converting. But behind the scenes, Peter was quietly drowning.
Despite the flashy sales, his gross profit margin had shrunk so low that he was losing money on every box.
And a big part of the problem? He had discounted himself into a corner.
Discounts, promotions, and BOGO (Buy One Get One) deals are a tried-and-true method for boosting short-term sales.
But for many eCommerce sellers, they’ve become the default—not the strategy.
When used without a clear understanding of unit economics, promotions can quietly obliterate your margins.
The Problem with
Over-Discounting
Discounts feel great in the moment. Sales spike. Conversion rates jump. You feel like a genius. But the real question is: what did it cost you?
Here’s a simplified view of what most eCommerce founders miss:
| Metric | No Discount | 20% Off Sale | BOGO Deal |
|---|---|---|---|
| Product Price | $50 | $40 | $50 |
| Cost of Goods (COGS) | $20 | $20 | $20 x 2 = $40 |
| Gross Profit | $30 | $20 | $10 |
| Gross Profit Margin | 60% | 50% | 20% |
In the BOGO example, yes—you moved two units. But you halved your profit margin. In some cases, like Peter’s, you actually lost money when factoring in fulfillment, marketing, and platform fees.
Peter’s BOGO Trap: A Real-World Example (with anonymized data)
Peter ran a premium meal kit brand with average product costs of $12, selling each box for $30. To boost volume, he launched a BOGO campaign—”Buy one box, get one free.”
His logic: “If I double sales, even with lower margins, I win on volume.”
Here’s what actually happened:
-
Pre-BOGO Gross Profit:
Sell Price = $30
COGS = $12
GP = $18
GPM = 60% -
BOGO Scenario (2 boxes shipped, $30 revenue total):
Revenue = $30
COGS = $24
Fulfillment + Payment Fees = $9
GP = -$3
GPM = Negative
Peter gained new customers—but lost money on every single one.
And because his ads were optimized for conversions (not profit), he was scaling a loss-making funnel.
Why This Happens: The “Discount Illusion”
Here’s what sellers often forget:
- Every promotion is paid for out of your Gross Profit
- If your GPM is already under 50%, you have very little room to discount
- Discounts lower your margin and delay your reorder cash flow
When Discounts Make Sense
Discounting isn’t evil—but it has to be strategic.
Discounts can work when:
- You’re launching a new product (with planned customer acquisition cost (CAC))
- You have very high GPM (65%+) and room to test
- You’re clearing end-of-life SKUs or excess inventory
- You’re bundling to increase AOV, not lower perceived value
- You generate a lot of recurring revenue from the same customer without additional ad spend.
Instead of flat discounts, consider:
- BOGO at a surcharge (e.g., “Buy one, get one 50% off”)
- Bundles with upsell value (e.g., add a sample for $5)
- Minimum cart disc
The Fix: Know Your Margin Before You Discount
If Peter had modeled his promotions through a Gross Profit Calculator, he would’ve seen the damage before running the campaign.
Instead, he had to clean up months of losses.
Before you run your next promotion, ask:
- What’s my true unit-level COGS?
- What’s my gross profit margin after the promo?
- Can I still afford ads, operations, and returns?
- Will this delay my next PO or tighten my cash cycle?
If you can’t answer confidently, don’t guess. That’s where margin mistakes begin.
Final Thoughts
Discounting can be a powerful tool—but only when paired with accurate margin math.
If your promotions are eating your profit, you’re not scaling a business—you’re subsidizing customer growth.
Need help running the numbers before your next campaign?
Let’s make sure your discounts work for your business—not against it.
CRONOSNOW | CPG & ECOMMERCE ACCOUNTANTS
Gain Clarity. See the Path Ahead.
The CronosNow ecommerce accountant Takeaway
What hurt Peter wasn’t a lack of sales—it was unchecked discounting. High-volume promos without solid gross profit math can feel like momentum, but they quietly erode the financial foundation of your business.
If you’re discounting without modeling the margin impact, you’re not scaling—you’re subsidizing.
Want clarity before your next promotion? We help ecommerce brands price strategically, protect their margins, and grow with confidence.