What Is Discount Percentage? Formula and Profit Math

How to Calculate a Discount Percentage

You need two numbers: the original price and the price the shopper pays. The gap between them is the amount off.

Discount % = (Original price − Sale price) ÷ Original price × 100

Example: A $40 Candle on Sale for $30

Amount off: $40 − $30 = $10
Share of the original price: $10 ÷ $40 = 0.25
As a percent: 0.25 × 100 = 25% off

It works the other way, too. To get a sale price, multiply the original price by what's left after the discount. For 20% off, that's $40 × 0.80 = $32.

Always divide by the original price. If you divide by the sale price, you get $10 ÷ $30, or 33%. That makes the deal look bigger than it is.

The same percent can be worth very different amounts: $3 off a $15 phone case, or $60 off a $300 jacket. Which one shoppers notice more, the percent or the dollars, depends on the price. That's the idea behind the Rule of 100 for pricing discounts.

Where Discount Percentage Shows Up in Shopify

When you create a discount in your Shopify admin, you pick a percentage or a fixed amount, then enter the value. A percentage can come off chosen products or off the whole order.

A compare-at price works differently. Shopify stores the higher "was" price and the price the shopper pays, but no percent. Any "25% off" label has to be worked out from those two prices.

You can also find your store's overall discount percentage. In Shopify's sales reports, divide total discounts by gross sales, then multiply by 100. $1,200 in discounts on $15,000 of gross sales is an 8% rate. Compare-at markdowns aren't in that number, since Shopify counts them as a lower price, not a discount.

In our app, Growth Suite, you set a minimum and maximum discount percentage. Visitors who show high interest get a smaller discount, and visitors with lower engagement get a bigger one. Offers only go to visitors who are less likely to buy. You can also cap the discount amount and A/B test discount depth.

Why 25% Off Can Cut Your Profit in Half

The percent comes off the price, but you feel it in your profit. Profit is a smaller number, so the same dollars are a bigger share of it.

Say each candle costs the shop $20. At $40, the shop keeps $20. At 25% off, it sells for $30 and keeps $10. The shopper saved a quarter, but the shop lost half its profit. To earn the same profit at that price, it has to sell twice as many candles.

For any product, divide the discount percentage by your gross margin. That gives the share of profit you give up. The candle's margin is 50% ($20 ÷ $40), so 25 ÷ 50 = 0.5. Half the profit is gone. At 50% off, the answer is 1, and the shop earns nothing on the sale.

So the right percent depends on your own margins. For how to pick one, see our guide to choosing the right discount percentage.

Myth: 25% Up and 25% Off Cancel Out

It feels like raising a price by 25% and then taking 25% off should bring you back to the start. It doesn't. Each percent is taken from a different price.

Take the $40 candle. Put the price up 25% and it's $50. Now take 25% off $50. That's $12.50 off, so the candle sells for $37.50. You end up $2.50 below where you began. To get from $50 back to $40, you'd only need 20% off.

Two discounts in a row work the same way. 20% off and then 10% off is 28% off, not 30%. Discount stacking covers how two offers combine on one order.