discount break-even volume
Also called: break-even volume
How much a buyer must purchase for a discounted deal to leave the seller the same total contribution as the full-price one: required volume = old volume × contribution per unit before the discount ÷ contribution per unit after it. Because the discount comes straight out of contribution, the extra volume needed is much larger than the discount percentage.
The discount break-even volume is how much a customer must buy for a discounted deal to leave the seller the same total contribution as the full-price deal. Contribution is price minus variable costs per unit; a discount comes straight out of it, because the variable costs (the tutor, the hosting, the materials) stay the same.
The formula: required volume = old volume × m ÷ (m − d), where m is the contribution per unit before the discount and d is the discount per unit. The extra volume needed is d ÷ (m − d). Because the discount is taken from the contribution, not from the price, the extra volume is much larger than the discount percentage: when contribution is 42% of the price, a 10% discount needs about 31% more volume, and a 20% discount almost 90% more.
Use it before agreeing any price cut "for volume": ask whether the buyer will realistically buy that much more, and whether that volume would have come anyway. Payment terms belong in the same calculation, since longer terms are a hidden discount (the cost of waiting for the money). Breaking even is the floor, not the goal: a discount that only restores the old contribution has added work, risk and a lower reference price for nothing.
Example
Klasna for Teams charges 800 UAH a lesson; the tutor gets 430 and video and AI cost 31, so m = 339 (42.38% of the price).
Veloria also asked for 60-day terms. At a 24% annual cost of money, 30 extra days cost 800 × 0.24 × 30 ÷ 365 = 15.78 UAH a lesson, and on the discounted price of 640 the same 30 days cost 640 × 0.24 × 30 ÷ 365 = 12.62. The full request then cuts 160 + 12.62 = 172.62 a lesson and needs 172.62 ÷ (339 − 172.62) = 172.62 ÷ 166.38 = +103.75% volume, more than twice the lessons, just to stand still. Neither company planned anything close to that, so Klasna offered trades instead of the discounts.
Common mistakes
- Comparing the discount with the price. 80 UAH is 10% of 800 but 23.6% of a 339 contribution; always compare with contribution.
- Forgetting payment terms. Extra days to pay are a discount that never appears on the invoice; add their cost to d.
- Counting volume that would have come anyway. Only extra volume caused by the discount pays for it.
- Treating break-even as success. At break-even you earn the same money with more work and a lower reference price.
- Using list price variable costs from memory. Recompute m from current tutor, hosting and fee costs before each decision.
Learn it in the course
- Discounts and give–get trades · How much extra volume a discount needs to pay for itself, why longer payment terms are a hidden discount, what to ask for in return, and who approves what.