Discount leakage calculator

The formula

• Implied list price. Annual revenue, divided by one minus your average discount rate. Your revenue is treated as already net of discount, so this grosses it back up to what the same sales would have been worth at list price.
• Revenue given away. Implied list price, minus annual revenue. Equivalent to annual revenue, multiplied by the discount rate, divided by one minus the discount rate. This is the headline figure, and it is deliberately not the naive shortcut of revenue multiplied by the discount percentage, which understates the leakage.
• Recoverable range. The same formula, recalculated with the discount rate reduced by the low and high number of points you set, defaults 1 and 3. The range shown is the difference between the current figure and each recalculated one.
• Share of profit, shown only when you enter a gross margin. Revenue given away, divided by annual revenue multiplied by gross margin. Context only, it does not change the recoverable range.

A check you can do on paper

4,000,000 in annual revenue at an average discount of 20 per cent gives an implied list price of 5,000,000, and 1,000,000 of revenue given away against that list price. Reducing the discount by 1 point, to 19 per cent, recovers roughly 61,728. Reducing it by 3 points, to 17 per cent, recovers roughly 180,723, the default range shown.

Benchmark sources

• A one percentage point rise in price lifted operating profit by roughly 8 per cent on average, nearly 50 per cent more impact than an equivalent one percentage point cut in variable costs, assuming volumes hold steady. McKinsey, The Power of Pricing, based on Compustat data across the S&P 1500.
• Software companies specifically are estimated to sacrifice roughly 11 to 17 per cent of revenue a year to unoptimised pricing, selling and contracting. Simon-Kucher, 2023 Global Software Study, over 500 software executives across 20 countries. This figure is software-specific and should not be read across to industrial or professional services businesses without a comparable study.
• The McKinsey pricing-leverage figure is included as context, it has not been compounded into the headline calculation, which is derived entirely from your own revenue and discount rate.

What happens to your numbers

Everything runs in your browser. Nothing you enter is stored or sent anywhere. The only thing we record is a single anonymous event that says a calculation was completed, with none of your numbers attached.