Summarize this article with
Promotional pricing is a temporary price cut meant to sell more than your regular price would. It pays only when the extra units earn more profit than the margin you give away. A 20% discount on a product with a 40% gross margin needs twice the unit sales just to break even.
This guide compares six strategies with the margin math for each. It works on Shopify, WooCommerce and any other platform.
What counts as promotional pricing?
Promotional pricing is any price reduction or price-linked offer that has a start, an end and a goal. The goal is usually more orders, a larger order, or cash from stock that is not moving.
Platforms give you the same few tools under different names. Shopify offers discount codes and automatic discounts for a percentage or amount off, buy X get Y, and free shipping, as its discount types page lists. WooCommerce offers coupons as a percentage discount, a fixed cart discount or a fixed product discount.
| Strategy | What the customer sees | Margin math | Pays when |
|---|---|---|---|
| Percentage off | 20% off a product | Cuts margin on every unit | Margin is high and demand responds to price |
| Bundle or buy one, get one | Buy two, get 25% off the pair | Cuts the margin per unit, adds a unit | Customers take a second unit they would not have bought |
| Spend threshold | 10% off orders over $75 | Cuts margin on the whole order | Carts rise well above the threshold |
| Free shipping | No shipping charge | Costs you the carrier rate | The rate is small next to the extra order value |
| Flash sale | A deal that ends Sunday | Same as percentage off, for a short window | The deadline is real and demand is pulled in |
| Clearance markdown | Old stock at a deep discount | Margin can be near zero | The stock would otherwise sit or be written off |
How much extra volume does a discount need to break even?
A discount needs extra unit sales of d divided by (m minus d), where d is the discount and m is your gross margin, both as shares of the price. With a 40% margin, a 20% discount needs 100% more units, which is twice as many.
Take a $50 product that costs you $30. The margin is $20, or 40%. At 20% off the price is $40, so each sale earns $10. You must sell twice as many units to earn the same $20 per original sale.
The table shows the extra units needed for other combinations. It uses gross margin before shipping, fees and ads, so real break-even points are higher. To include shipping and payment fees for one product, enter them in the free profit margin calculator.
| Gross margin | 10% off | 20% off | 30% off |
|---|---|---|---|
| 30% | 50% more units | 200% more units | Never breaks even |
| 40% | 33% more units | 100% more units | 300% more units |
| 50% | 25% more units | 67% more units | 150% more units |
| 60% | 20% more units | 50% more units | 100% more units |
Read it before you pick a depth. At a 30% margin, a 30% discount sells at cost, so no extra volume can recover it.
When does each strategy pay?
Each strategy pays under a different condition, and the condition is a number you can check before you launch.
Percentage off
A percentage discount pays on high-margin products with price-sensitive demand. Use the table above: if you cannot plausibly sell the extra units it lists, choose a smaller cut. Apply it to a collection of similar products rather than the whole store, so low-margin items are not caught in it.
Bundles and buy one, get one
A bundle pays when it moves a second unit. Take a $30 product that costs $12. Buy one, get the second at 50% off gives $45 for two units, an average discount of 25% per unit. Profit is $45 minus $24 of cost, or $21. A single full-price sale earns $18, so the offer wins whenever the second unit was a sale you would not otherwise have made.
Spend thresholds
A spend threshold pays only if carts grow well past the threshold or more customers buy. Say your average order is $60 on a 40% margin, so you earn $24. A customer who adds $15 to reach a "10% off over $75" offer pays $67.50 for goods that cost you $45. You earn $22.50, which is less than before. Set the threshold well above your average order, and check the average cart afterward.
Free shipping
Free shipping pays when the carrier rate is small next to the order value it brings. On a $50 order with a 40% margin, you have $20 to cover costs. A $6 shipping cost leaves $14. To earn the same $20 in total, you need about 43% more orders ($20 divided by $14), or larger orders.
Offering free shipping only above a spend threshold limits that cost to larger carts. Shopify's free shipping discount can apply to customers who meet criteria you set.
Flash sales
A flash sale pays when the deadline is real and demand moves forward without starving full-price sales afterward. The margin math is the same as for percentage off. What changes is the window: a short one, with an end date customers can see. Never reset the timer. A deadline that keeps moving teaches customers to ignore it. To show that deadline on your store, add a free countdown timer for your website that ends at the same moment for every visitor.
Clearance markdowns
A markdown pays when the alternative is worse than a thin margin. Stock that sits ties up cash and storage, and what you paid for it is already spent. Any price above the cost of selling one more unit (payment fees, packing, the shipping you pay) beats writing it off. Keep clearance away from products you plan to reorder, or customers will expect that price again.
What can go wrong with promotional pricing?
The main risks are a crossed-out price that is not genuine, customers who wait for the next sale, and prices that never come back.
A crossed-out original price must be real. In the United States, the Federal Trade Commission's Guides Against Deceptive Pricing (16 CFR 233.1) set the test. A former price must be the actual, bona fide price at which the article was offered to the public on a regular basis. It must also have been offered for a reasonably substantial period. An artificial, inflated price set only to allow a large reduction is a fictitious price.
Check the current rules for your country, because they differ.
Customers also learn your calendar. Give every promotion a reason and an end date, and leave weeks between them. The third risk is operational: a discount that should have ended and did not quietly cuts margin on every sale.
How do you run a promotion so it ends on time?
Set the end when you set the start, and check the prices afterward. Shopify discounts can have an end date, and WooCommerce coupons can have an expiry date. A sale made by changing the product's price and compare-at price has no end date on Shopify, so something has to put those prices back.
Doing it by hand works on every platform today. Use the native end dates above, or put the end time in a calendar and assign one person to restore the prices. PopAutomate, Grovlix's sale-scheduling app, is built for Shopify. PopAutomate is not on the Shopify App Store yet. Its help center explains how it changes prices and puts them back at the end time, and what to check when prices did not go back.
Frequently asked questions
What is the most profitable promotional pricing strategy?
None wins everywhere. A bundle or a buy-one-get-one offer protects profit when the extra unit is a sale you would not have made. You earn margin on a unit that did not exist before. Percentage discounts earn the most only on high-margin products. Free shipping and flash sales work when the cost is smaller than the order value you gain. Run the break-even calculation for each product before you choose.
How big should a discount be?
Big enough to change what customers do, and small enough that the extra units pay for it. Work backward from your gross margin. At a 40% margin, a 10% discount needs about a third more units to break even, and a 20% discount needs double. If the lift you can realistically get is lower, offer a smaller discount.
Do discounts train customers to wait for sales?
They can. If a sale returns every few weeks, customers learn the pattern and stop paying the regular price. Keep promotions tied to a real reason, such as a season or an end-of-line clearance, give each one a fixed end date, and leave gaps between them. Track how much of your revenue comes from discounted orders.
Is it legal to show a crossed-out original price?
Only if the original price is genuine. In the United States, the Federal Trade Commission's Guides Against Deceptive Pricing (16 CFR 233.1) say a former price should be the actual price you openly offered the item at. You should have offered it on a regular basis for a reasonably substantial period. Rules differ by country, so check the current rules where you sell before you use a crossed-out price.
Run the promotion on a timer
A promotion pays only if it ends when you planned and the old prices come back. PopAutomate, made by Grovlix (the publisher of this blog), schedules a sale on Shopify and puts prices back at the end. PopAutomate is not on the Shopify App Store yet. Its help center shows how a scheduled discount works.
