Start with the order economics, not the percentage

This guide uses the familiar search term “discount codes,” but the economics apply equally to automatic offers. Setka supports a broad set of promotion rules, including percentage and fixed discounts, Buy X Get Y, shipping offers, spend-and-save deals, quantity breaks, targeted product or category sales, schedules, savings caps, and compatible combinations.

“10% off” is easy to understand and dangerously incomplete. The discount comes out of the money left after product cost and other costs that rise when you accept an order. A promotion can increase order revenue while leaving less money to cover payroll, software, rent, returns, and profit. Revenue answers “how much did the customer pay?” Contribution margin asks “what remains after the sale-specific costs?”

Download the discount margin calculator and open it in Excel, Google Sheets, or Numbers. It contains three explicitly fictional scenarios and working formulas. Replace every assumption, use one currency and one tax basis throughout, and enter the total basket separately from the merchandise eligible for the offer.

This is a planning tool, not a tax return or accounting policy. Use the tax basis and cost definitions established for your business, and resolve any missing treatment before using the result to approve a campaign.

Calculate contribution margin before and after the offer

At order level, a useful planning formula is:

Contribution margin = discounted merchandise revenue + customer-paid shipping − product cost − payment cost − fulfilment and packaging cost − carrier cost − other variable cost

The calculator keeps total merchandise revenue and eligible merchandise revenue separate, so an offer can apply to only part of a mixed basket. For a percentage offer, the discount is eligible revenue × discount rate; a fixed offer cannot exceed eligible revenue; an optional cap limits either result. The payment fee is recalculated from customer revenue after the discount, including customer-paid shipping. Contribution margin percentage is contribution after discount ÷ customer revenue after discount. A negative contribution means the modeled order fails to cover its modeled variable costs. A positive result still has to cover fixed costs, returns, and profit.

Be consistent about tax. If merchandise revenue is tax-exclusive, enter costs and customer-paid shipping on the same tax-exclusive basis where appropriate. Do not compare tax-inclusive revenue with tax-exclusive costs and call the difference margin. Likewise, decide whether expected refunds, return postage, marketplace charges, or pick-and-pack fees vary enough with campaign orders to deserve their own input.

The model is only as good as its assumptions. Mark the source and date for product cost, carrier charge, packaging, and payment terms. Enter the provider’s percentage and fixed fee separately; the sheet calculates them on the modeled post-discount payment. The shipping-subsidy column shows the part of carrier cost not covered by shipping revenue, while the contribution formula keeps both amounts visible. For the wider checkout context, read how checkout and Stripe payments work.

Choose a discount only when the use case is clear

A code is a mechanism, not a strategy. Name the customer behavior or operational problem the offer should address.

  • A first-order invitation can give a genuinely new shopper a reason to try the store. Define “new” and decide how guest checkout, duplicate emails, and household orders are handled.
  • A product-specific promotion can focus attention on an overstocked item or a deliberate assortment story. Check the margin of the eligible products rather than using the store average.
  • A minimum-spend offer can encourage a larger basket, but only if the threshold and discount leave a safe contribution. Model a basket just above the threshold—the customer does not owe you a comfortably high order.
  • A service-recovery code can resolve a specific poor experience. It should be narrow, documented, and easy for support to explain.
  • A partner or creator code can attribute a campaign at a basic level. Include any commission or placement fee in the economics; code uses are not proof that the promotion caused every order.
  • A time-bounded seasonal offer can coordinate merchandising and communication. A deadline should be real, shown with a timezone where ambiguity matters, and removed when the campaign ends.

Avoid discounting simply because the calendar is quiet. Improve product grouping, photography, or product-card clarity first when the underlying problem is weak presentation. Merchandising a small catalog explains how to create a focused selection without inventing urgency.

Set a discount ceiling from your margin floor

Work backwards from the lowest acceptable contribution margin in currency, not from a competitor’s headline percentage. In a simplified model, the maximum affordable discount is the pre-discount contribution margin minus the contribution amount you must retain. Add a safety buffer for uncertain variable costs.

Suppose an order has 100 in eligible merchandise revenue and 62 in total variable costs, with no customer-paid shipping. Its pre-discount contribution is 38. If the business requires at least 20 of contribution, the theoretical discount ceiling is 18. That does not mean 18 is advisable: returns, fee changes, and basket mix can consume the gap. It means a 25 discount clearly conflicts with the stated floor under those assumptions.

Test at least four edges: the cheapest eligible product, a basket exactly at the threshold, a basket just above it, and the largest plausible eligible basket. For a percentage offer, a maximum discount can cap exposure. For a fixed-amount offer, prevent the discount from exceeding eligible merchandise revenue or creating an unintended zero-value order.

Define eligibility before writing campaign copy

Write the rule in plain language, then configure it. Specify eligible customer, products or categories, minimum quantity or spend, start and end, geography if relevant, maximum discount, redemption count, and whether the offer can combine with other promotions. In Setka, choose the promotion rule that matches that commercial job, then verify eligibility, boundaries, schedule, savings cap, and intended combinations in test orders.

Setka can run automatic percentage and fixed-amount promotions, Buy X Get Y offers, free or discounted shipping, spend-and-save deals, quantity breaks, product- and category-specific sales, scheduled campaigns, and savings caps. Compatible offers can combine automatically. The merchant still chooses the audience, products, dates, thresholds, economics, and campaign wording, then verifies the eligible, ineligible, boundary, and combination states in the cart.

That gives a founder several ways to shape an offer without adding a separate promotion system. Model the offer, configure the matching rule in Setka, and test eligible and ineligible carts plus every intended combination before committing the campaign creative. The shopping cart UX guide provides a broader cart-state test.

Plan abuse controls without punishing legitimate shoppers

On a platform that supports codes, use the narrowest controls that match the use case. A first-order offer may need one redemption per customer plus a total campaign cap. A partner code may need a short validity period and excluded low-margin products. A fixed discount may need a minimum spend comfortably above the discount value. Do not collect extra personal data merely to make an offer harder to share.

Assume a public code can travel beyond its intended audience. Decide beforehand whether you will honor leaked uses, disable the offer, or contact affected customers. Give support a written exception policy. Automated fraud flags can produce false positives, so provide a route for a legitimate customer to ask for review rather than presenting an unexplained rejection.

Test combinations explicitly. Put an eligible and excluded item together; change quantity; cross the threshold by the smallest unit; remove an item after the discount appears; test the beginning and end time; and try any other live promotion. If stacking cannot be controlled or verified, calculate the worst combination or avoid overlapping campaigns.

Communicate the offer at the decision point

Campaign copy should say what customers receive, what qualifies, when it ends, and the material exclusions. Put a concise version near the promotion and link to complete terms. At cart level, show the applied discount and updated amount clearly. If an entered code fails on a platform that supports codes, distinguish expired, ineligible, and mistyped states when possible, while avoiding disclosures that enable account abuse.

Do not hide a minimum spend in fine print or advertise “sitewide” while excluding important categories. State whether the threshold is calculated before shipping and tax. If the customer can remove an item and fall below the threshold, update the cart immediately and explain why the discount changed. Clear cart feedback is part of the commercial offer, not decorative microcopy.

Use three scenarios, then replace them

The download includes three fictional teaching cases: a percentage offer on part of a mixed basket, a fixed product promotion, and a capped seasonal percentage promotion. They are not benchmarks, recommendations, customer results, or Setka configurations. Their numbers show how the same headline discount behaves differently when eligibility, product cost, fulfilment, shipping, payment terms, and basket value change.

For each real campaign, duplicate a row for a low-margin basket, an expected basket, and a high-value basket. Replace averages with item-level economics where basket mix varies significantly. Compare the post-discount contribution with your chosen margin floor and the calculator’s safety check. Also estimate campaign-level cost: number of discounted orders multiplied by discount and variable operational effects, plus creative, partner, or media spend.

For a complete view of what the business must cover beyond variable order costs, use the online-store cost guide. A promotion should be assessed within the store’s real cost structure, not as an isolated percentage.

Review the campaign after it ends

Record the planned audience, dates, eligibility, margin floor, and expected order mix before launch. Afterwards, compare the plan with actuals:

  1. Count eligible orders, discounted revenue, discount cost, refunds, and contribution using consistent definitions.
  2. Segment by product mix, customer type, and acquisition source where the data is reliable and lawful to use.
  3. Compare campaign orders with an appropriate baseline, while acknowledging seasonality and other changes. A before-and-after difference alone does not prove the discount caused it.
  4. Review support contacts, failed attempts, leaked-code handling, and confusing terms.
  5. Decide whether to repeat, narrow, redesign, or stop the promotion—and write down why.

Do not report revenue alone. A campaign can produce more sales and less contribution. Do not claim “incremental” sales without a credible comparison or experiment, and do not promise that a discount will improve conversion or revenue.

Your next test

Download the calculator, replace every fictional input with a sourced assumption, and set a contribution floor. In Setka, choose the offer that fits the commercial job, then test eligible, ineligible, threshold, schedule, cap, and combination states before making it active.