The verdict in three sentences
A promo code is a double-edged sword: miscalibrated, it wipes out margin instead of boosting volume. At 30 % gross margin, a 10 % discount cuts about a third of the profit on each affected order. Discipline means conditioning the discount (cart threshold, first purchase) and favoring free shipping, which is less destructive to margin.
A discount's impact on margin
The classic trap: thinking in percentage of price when you should think in percentage of margin. A 10 % discount on price translates into a proportionally much heavier hit on profit.
| Gross margin before discount | Discount applied | Remaining margin | Profit loss |
|---|---|---|---|
| 40 % | -10 % | 30 % | -25 % |
| 30 % | -10 % | 20 % | -33 % |
| 25 % | -10 % | 15 % | -40 % |
| 30 % | -15 % | 15 % | -50 % |
| 20 % | -10 % | 10 % | -50 % |
Discount types and profitability
Not every mechanic destroys margin the same way. Free shipping above a threshold and the first-purchase discount (acquisition) are the healthiest; loyalty discounts must stay targeted to avoid subsidizing already-acquired customers.
| Discount type | Margin risk | Recommended threshold | Ideal use |
|---|---|---|---|
| Unconditional % discount | High | Avoid | Never |
| % discount with cart threshold | Moderate | 1.5× AOV | Volume |
| Fixed amount (e.g. 2,000 FCFA) | Controlled | On carts > 15,000 | Small nudge |
| Free shipping | Low | 1.3× AOV | AOV + acquisition |
| First-purchase discount | Low | -10 % max | Acquisition |
Mini case study
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Modou sells electronics in Dakar: 40,000 FCFA average cart, 25 % gross margin, i.e. 10,000 FCFA margin per sale. He launches an unconditional -15 % code: the 6,000 FCFA discount leaves 4,000 FCFA of margin, a -60 % profit hit per order. He fixes it by imposing a 60,000 FCFA cart threshold with free shipping (real cost 3,000 FCFA): carts rise to 60,000 FCFA (15,000 FCFA gross margin minus 3,000 shipping = 12,000 FCFA net), i.e. +20 % profit instead of -60 %. Same "promo" advertised, opposite result.
FAQ
Does a 10 % discount really cost that much? Yes: at 30 % margin, a -10 % code wipes out a third of the order's profit; at 25 % margin, it wipes out 40 %.
What cart threshold keeps you profitable? Set the threshold at about 1.3 to 1.5× your average order value so the discount is offset by the extra volume.
How do you prevent code abuse? Limit to one use per customer, a short window and a non-public code; otherwise abuse can hit 10 to 20 % of uses.
First-purchase or loyalty discount? The first-purchase discount funds acquisition and pays off over customer lifetime value; loyalty discounts must stay targeted so as not to subsidize already-acquired customers.
What ROI to expect from a mobile money promo campaign? A well-designed campaign with a cart threshold targets a 3 to 5× ROI; unconditional, it is often loss-making from the first order.
Let's talk about your project. We calibrate your promo codes to sell more without sacrificing your margin. WhatsApp +221 77 596 93 33.
Mohamed Bah
Fondateur, Kolonell
Passionate about digital and entrepreneurship in Africa, Mohamed has been helping Sénégalese businesses with their digital transformation since 2020. Founder of Kolonell, he believes every SME deserves a professional and accessible online présence.
