What a discount actually costs, and why the number surprises people

A ten per cent discount does not cost ten per cent. Working through the arithmetic changes how most people feel about conceding on price.

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Discounting feels like a percentage decision and behaves like a margin decision. The gap between those two framings is where a great deal of profit quietly goes. The mechanism is simple enough to work through on paper, and doing so tends to be more persuasive than any amount of exhortation about holding firm. The arithmetic A discount comes entirely out of gross margin. Costs do not fall because you conceded on price. So the proportion of margin surrendered is the discount divided by the margin, not the discount divided by…

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