What is the difference between discount rate and markdown?

A discount is taken off at checkout, usually with a code or automatic promotion, and is recorded as a discount on the order. A markdown is a lower list price set on the product itself. Markdowns often won't appear in discount reports, so track them separately if you use them a lot.

Should I measure discount rate by value or by number of orders?

Both. Value tells you how much margin you are giving away, while the share of discounted orders tells you how widely customers expect a deal. Together they show whether you run a few deep promotions or many small ones.

Do discounts reduce net sales?

Yes. Net sales is gross sales minus discounts and refunds, so every discount comes straight off it. That is why a store can report strong gross sales during a promotion and much weaker net sales.

Are welcome discounts worth it?

It depends on what happens after the first order. If customers who use a welcome code go on to buy again at full price, the discount is paying for acquisition. If they rarely return, it is mostly giving margin away.

How often should I check discount rate?

Monthly as a trend, and after every major promotion. Compare against the same period last year to separate seasonal sales from a real shift in how customers buy.

What Is Discount Rate? Formula, Benchmarks and How to Track It

Discount rate is total discounts divided by gross sales, as a percentage. It shows how dependent sales are on promotions, and because discounts come straight out of margin, a small rise in discounting can wipe out a large share of profit.

Discounts are the fastest way to move sales in an online store, which is exactly why they are easy to overuse. A code here, a seasonal sale there, a welcome offer for every new subscriber - and a year later a big share of revenue only arrives when something is on sale.

Discount rate measures how much of your gross sales you give away to make those sales happen. It is a simple number, and watching it over time tells you whether promotions are working for you or whether customers have learned to wait for them.

What Is Discount Rate?

Discount rate is total discounts divided by gross sales over a period, shown as a percentage. It includes coupon codes, automatic promotions, sale pricing recorded as a discount and any other money taken off the order at checkout.

It shows how dependent your sales are on promotions. Because discounts come straight out of margin, a small rise in discount rate can remove a large share of profit.

🧒 Explained simply Your lemonade costs $1 a cup. On Saturday you run a "two cups for $1.50" deal and sell 40 cups. Without the deal they would have cost $40 - you took in $30. You gave away $10 out of $40, so your discount rate was 25%. The big question is whether those customers come back next Saturday at full price.

How to Calculate Discount Rate

Discount Rate = Discounts ÷ Gross sales × 100

Say a store has, for one month (illustrative round numbers):

Gross sales: $60,000
Discounts: $7,200

Discount rate = $7,200 ÷ $60,000 × 100 = 12%

Track a second number next to it: the share of orders that used a discount. If 900 of 2,000 orders used a discount, that is 45% of orders. A low discount rate with a high share of discounted orders means you are running many small discounts; the opposite means a few deep ones.

Edge cases to settle once:

Markdowns vs discounts. If you lower a product's price directly instead of applying a discount, that reduction may not show up as a discount at all. Decide whether to count markdowns, and if so, track them separately.
Free shipping. Free-shipping offers cost money but usually aren't recorded as product discounts. Count them in contribution margin rather than discount rate.
Gift cards and store credit. These are a form of payment, not a discount, and should stay out.

Why Discount Rate Matters

Discounts come out of margin, not out of revenue in general - and that makes them much more expensive than they look. Take a product that sells for $100 and costs $60, so it earns $40 in gross profit. A 20% discount takes $20 off the price, which halves the profit on that sale. To earn the same total profit you now need to sell twice as many units.

Discount rate also shows a change in customer behaviour. When it creeps up month after month while full-price sales fall, customers have started treating the sale price as the real price. That is hard to undo.

And it helps judge promotions properly. A sale that doubles revenue for a week can still lose money once you count the margin given away and the dip in full-price sales afterwards.

What Is a Good Discount Rate?

There is no universal target. Some categories and business models run on regular promotions, others almost never discount, and both can be healthy.

Watch the trend instead. A discount rate creeping up while full-price sales fall is a warning sign. Compare the same months year over year, because seasonal sales will make some months look high. And compare categories inside your own store - one category that only sells on promotion is worth a closer look.

How to Reduce Discount Rate

1. Measure every promotion after it ends

Judge each sale on margin, not revenue, and include the weeks after it. If full-price sales dipped after the promotion, some of the "extra" sales were just pulled forward from later.

2. Compare customers acquired with and without a discount

Look at how often customers who first bought with a code come back, and whether they buy again at full price. If discount-acquired customers rarely return, a welcome code may be bringing in one-time bargain hunters.

3. Target discounts instead of running them store-wide

Use promotions to clear slow-moving stock, win back lapsed customers or launch new products. Store-wide codes give margin away on products that would have sold anyway.

4. Swap percentage-off for value-adds

Free gifts, bundles and free shipping over a threshold often feel just as generous to customers while costing you less than a percentage off every item.

5. Close coupon leaks

Codes meant for one audience end up on coupon sites. Use single-use or expiring codes, limit codes to specific products, and review which codes are used most each month.

6. Give full-price buyers a reason to buy now

New arrivals, limited runs, loyalty perks and clear product value reduce the pull of a discount. Customers wait for sales when nothing else tells them to buy today.

How to Track Discount Rate

Chartsy for Ecommerce connects to your BigCommerce store with read-only access and syncs orders, products and customers every hour. It calculates discount rate from your synced orders automatically, and you can break it down by month, product or category. Discounts are reported separately from gross sales, so promotions are easy to measure.

Useful views to check after every promotion:

"Show discounts and gross sales by month for the last 12 months"
"Which products had the most discounts last quarter?"
"Compare discounts by category this year vs last year"

Try Chartsy for Ecommerce free for 14 days →

What is Discount Rate?

Key takeaways