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There is no universally safe seasonal discount percentage. Set one only after calculating how it changes your profit per sale and how much extra volume would be needed to offset that reduction. Then target the products and dates where a promotion supports a clear goal, and review results before changing the offer.
1. Choose what the promotion must achieve
Pick one primary objective before choosing a discount: generate demand during a slow period, clear stock before the season ends, bring back inactive customers, increase basket size, or improve cash flow. “More sales” is not specific enough: decide whether success means higher profit, more units, faster sell-through, or less cash tied up in inventory.
Boston Consulting Group describes evaluating markdown scenarios against objectives such as gross margin, sales volume, and working capital. Its analysis focuses on fashion retail, so use the framework rather than assuming its findings apply equally to every category. BCG’s analysis of fashion markdowns also estimates that fashion retailers invest more than $1 trillion annually in markdown programs; that estimate concerns fashion, not retail discounts as a whole.
2. Calculate the price floor and volume hurdle
Separate gross margin from markup
Gross margin is gross profit as a share of the selling price. Markup is the amount added to cost, expressed as a share of cost. They are not interchangeable, and confusing them can make a discount look safer than it is. Before advertising, calculate current margin, markup, and break-even, then work out the proposed selling price and gross profit per unit. Business Victoria’s discount guidance recommends checking these figures and estimating the price needed to remain profitable.
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Estimate the extra units needed
If current gross margin is m and the discount rate is d, the extra sales volume required to preserve the same gross profit dollars is d / (m − d), assuming unit cost is unchanged and there are no other effects. For example, with a 40% gross margin and a 5% price reduction, the calculation is 0.05 / (0.40 − 0.05), or a 14.3% increase in units. Business Victoria gives this as an illustrative example, not a forecast or guarantee for a particular business.
This calculation isolates gross profit. For a more complete decision, include variable costs that change with the promotion, such as payment fees, fulfillment, packaging, returns, and promotion expenses. Changes in cost, product mix, returns, channel fees, or customer behavior can alter the result. A discount that increases revenue or units does not necessarily increase contribution profit.
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3. Select products and dates using sales and stock evidence
Review historical sales cycles alongside current-season sales against plan. For each product or SKU, consider stock on hand, expected replenishment, time remaining in the season, and how demand responds to price. A promotion may make sense for slow-moving or soon-to-be out-of-season stock, but an automatic discount on a strong seller can give away margin without creating enough additional demand.
Boston Consulting Group describes forecasting price response at SKU level while accounting for seasonality, promotional intensity, traffic, and stock-outs. It recommends comparing scenarios against the retailer’s objectives. McKinsey likewise argues against uniform markdowns: decide which items, locations, timing, and price depths warrant a reduction. A calendar event or competitor’s sale date alone does not establish that your own stock needs a discount.
BCG reports that, in its experience with more than 20 projects in the preceding 18 months, analytics-supported in-season and end-of-season sales programs produced gross-margin increases of 10%–20%. This is consulting-firm project experience, not a controlled estimate or an expected result for every retailer.
4. Choose the offer format and depth
Match the offer to the item’s stock position, likely price response, and the cost of running the promotion. A percentage or fixed amount off is easy to communicate; bundles, quantity offers, free shipping, gift wrapping, or another value-add may encourage a purchase without reducing the item’s sticker price. These alternatives are not cost-free: account for the product, fulfillment, service, and promotional costs they add.
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Price-response estimates can help distinguish products likely to gain meaningful volume from a smaller cut from products that may sell about the same while earning less per unit. BCG presents this as a modeling insight, not a guarantee for an individual SKU. Business Victoria also recommends considering competitors and setting a defined promotion period.
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5. Stage the markdown and set review rules
Write down the start and end dates, eligible SKUs or customer segments, maximum discount, and the date or performance threshold that will trigger a review. If inventory and season length allow, begin with a controlled offer and deepen it only when actual sell-through and the chosen objective justify doing so.
McKinsey describes phased markdowns and warns against failing to revisit underperforming markdowns. A peer-reviewed 1997 model by Gabriel R. Bitran and Susana V. Mondschein examines periodic review of seasonal pricing and inventory. Neither establishes one review interval suitable for every business; choose a cadence that fits demand, stock, product life, and operational capacity.
McKinsey reported a 400–800 basis-point margin-rate improvement from markdown optimization in its 2023 article. Treat that range as the article’s attributed finding, not a promise for a particular retailer.
6. Measure whether the promotion worked
Compare results with the objective you set, using the same period and product scope where possible. Track:
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- Gross profit or contribution profit, not only revenue and units.
- Units sold, sell-through, and stock left when the promotion ends.
- Working capital tied up in remaining inventory.
- Whether full-price purchases were discounted unnecessarily or purchases were shifted forward from a later date.
- Execution and communication costs, including any added fulfillment or service burden.
These are practical measures to evaluate a promotion, not findings that the cited sources measured for your business. Use the results to adjust the next offer’s products, timing, scope, or depth rather than assuming that a sale succeeded because it moved more units.
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