In a negotiation, granting a discount looks straightforward: a few percentage points off the total, to close the job. But the effect of a discount on your real margin is almost always larger than it first appears, and understanding why is essential if you are not to erode your profit without realising it.
Why a discount bites harder than expected
Take a quote with a cost of €800 and a selling price of €1,000: the margin is 20% of the price. A 10% discount brings the price to €900, but the cost is still €800 — so the real margin drops to about 11%, not to 10% as you might assume by simply subtracting the discount from the original margin. The lower your starting margin, the more a discount compresses it in proportion.
Margin on cost versus margin on price
This ambiguity causes mistakes daily: "a 20% margin" can mean 20% added to the cost (a mark-up) or 20% of the final selling price (a true margin). They are different numbers: a 20% mark-up on cost equates to a real margin of about 16.7% on the price. The correct formula for reaching a target margin on the selling price is to divide the cost by (1 − the margin you want), not to multiply it by (1 + the margin).
What a minimum price really is
Below a certain price the job stops being worthwhile and becomes an outright loss. The minimum acceptable price is not the cost of the materials: it is the total cost — materials, labour, a share of fixed costs, a buffer for surprises — below which every euro of discount you grant comes straight out of the company's profit, not just off a percentage.
How to protect yourself in a negotiation
Having three thresholds visible while you negotiate — full price, the price at your minimum acceptable margin, and pure break-even — lets you concede discounts knowingly, aware of exactly how much margin you are giving up and how far you can go before working at a loss. A visual traffic light showing those three levels in real time, as you build the quote, avoids the surprise at month end when a job that "went well" turns out to have returned far less than you thought.