A Discount on a Service: How Many Extra Customers You Need for a Promotion to Pay Off

A discount pays off when the extra customers cover what you're losing on every service. The deeper the discount, the faster the number of customers needed to pay off grows: a 10% discount needs roughly 14% more customers, a 20% discount 32% more, and a 30% discount 58% more.

Let's go through how to calculate this for your own service and check whether the schedule has enough places. What underpricing is, is covered in a separate article. Here we calculate a single promotion.

In plain terms. Picture selling pizza for $10, with $4 left from each pizza. You give a discount, and now $2 is left. To earn as much as before, you need to sell twice as many pizzas. A discount doesn't add profit by itself: it changes the number of customers needed for the same result.

What a discount changes

The price goes down, while the costs of the service are almost the same. Materials cost as much, and the specialist's pay, if it's a percentage, shrinks only in part. So less is left from every service than before, and often noticeably less.

Overall costs, like rent, don't depend on the number of customers, so we don't touch them in this calculation. We only compare what's left from one service after the specialist and materials.

Left from a service = Price × (1 − Specialist's share) − Materials

Calculating step by step

Picture a specialist. A service costs $100. The specialist is paid 40% of the price, and materials cost $10. Right now they perform 50 such services a month, and that's 60% of their utilization.

Step one: what's left now. $100 × (1 − 0.4) − $10 = $50 from every service. Over a month, 50 × $50 = $2,500.

Step two: what's left with a discount. With a 20% discount, the price is $80. Then $80 × 0.6 − $10 = $38 from every service.

Customers needed = Customers now × Left now ÷ Left with the discount

Step three: how many customers are needed. 50 × $50 ÷ $38 = about 66 customers. That's 16 more, or 32%. Just to get back to $2,500, almost a third more new customers are needed.

Step four: is there enough room. 50 services take 60% of the schedule, so each service is 1.2% of utilization. 66 services would give about 79%. There's room, but the cushion has shrunk.

In the last row, a 30% discount needs 79 customers, which is almost a full schedule. If the cushion of places is small, a promotion of that depth won't fit.

Who will get the discount

The calculation above assumes that all customers with the discount are new. In reality, the discount will also be used by those who would have come at full price. That's a risk that's easy to miss.

Suppose that of 50 regular customers, all 50 used the 20% discount, and not a single new one came. Then 50 × $38 = $1,900 instead of $2,500, which is $600 less. The promotion didn't pay off, even though the calendar was full.

So it's convenient to make a discount for a certain group or for a certain period: for new customers, for quiet days, for services with open slots. Then regular customers don't get it automatically.

When a discount makes sense

A discount is justified when three conditions are met. The schedule has open places that would otherwise stay empty. The calculation shows that the number of customers needed fits into the schedule. And the promotion is limited in time: a permanent discount becomes the new price, and then a price calculation is needed.

How to calculate this from your own data

In BizCalc, you change a service's price in the “Services” section and immediately see the “Profit” column at the new price. Then in the “Forecast” section, with the “+” and “−” buttons, you raise utilization to the level that would give the number of customers needed, and see whether profit returns to what it was.

Careful. BizCalc shows profit together with a share of overall costs, so the figures will differ from the calculation in the article, where we took only what's left after the specialist and materials. The direction of the calculation is the same.

What's worth remembering

• A discount reduces what's left from each service. Materials cost the same, while the price is lower.

• The number of customers needed grows faster than the discount. A 20% discount needs 32% more customers.

• The schedule has to fit the new customers. A 30% discount in the example takes up 95% of the schedule.

• Regular customers will use the discount too. If no new ones come, profit goes down.

• A limited discount is easier to control. For a set period, for a certain group, or for quiet days.

Frequently asked questions

How many customers are needed for a discount to pay off?

Enough for the amount left from all services to be no smaller than before. In the article's example, a 20% discount needs 66 customers instead of 50.

How do you calculate what's left from a service?

Subtract the specialist's pay and materials from the price. At a price of $100, a specialist's pay of 40%, and materials of $10, that's $50.

What discount is considered safe?

There's no single safe discount. The deeper it is, the more customers are needed. It's convenient to first calculate how many customers will fit into your schedule.

Are discounts for new customers worthwhile?

They limit the risk that regular customers will use the discount. The calculation is the same, you only need to estimate how many new customers will realistically come.

How does a discount differ from underpricing?

A discount is temporary and has a goal, for example filling open slots. Underpricing is a sustained low price that doesn't cover costs.

How do you test a discount in advance?

Calculate the scenario ahead of time in the forecast and limit the promotion in time. After the promotion, compare the number of new customers with the calculated one.