The discount trap

"It's only 10%." Every discount conversation contains that sentence, and it's built on an illusion: the 10% is measured against the price, but it's paid entirely out of the profit — a much smaller pot.

Watch where the discount lands

A job priced at $1,000 with $750 of costs holds a $250 profit — a 25% margin, healthier than most. Give the client 10% off:

• New price: $900
• Costs: still $750 — the supplier doesn't celebrate your generosity
• New profit: $150

The price moved 10%. The profit moved 40%. The general rule: a discount of d on a margin of m destroys d ÷ m of the profit. At a 25% margin, every point of discount burns four points of profit. At a 20% margin, five. Thin-margin businesses handing out "just 10%" are handing out half their earnings.

The recovery bill

"I'll make it up on volume." Compute the volume before trusting it. Profit per job fell from $250 to $150, so earning the same money needs:

$\text{extra volume} = \frac{d}{m - d} = \frac{0.10}{0.25 - 0.10} = 66.7\%$

Two-thirds more jobs. More materials handled, more hours on the clock, more wear on the truck — for the same take-home. On 100 jobs a year, the "small" discount costs you 67 more of them.

When discounting still makes sense

The math doesn't forbid discounts; it prices them. Reasonable trades exist:

• Cash flow over margin — a deposit-paying, net-on-completion client may be worth points a slow payer isn't (module 3 shows why).
• Filling a dead week — above variable cost, an otherwise-empty slot contributes SOMETHING; just don't let dead-week pricing leak into busy weeks.
• A package, not a price cut — "10% off if we also do the back fence" buys volume with the discount instead of hoping for it.

What the math does forbid is reflexive discounting — knocking points off to close, without ever computing d ÷ m. Next lesson runs the asymmetry the other way: what happens when you RAISE the price and lose some volume on purpose.