Margin-Leak Audit

Guides · Discounts

How to find the Shopify discount codes that are eating your margin

A discount feels like a marketing decision. On the books it is a margin decision, and it is one that tends to stay switched on long after the campaign it was made for. This guide shows where to look in your own Shopify admin to see which discounts cost you the most, how they combine, and what a discount does to the margin on a single order.

Start with the report Shopify already gives you

Shopify's Sales by discount codes report groups sales by discount name, whether it was an automatic discount or a code. According to Shopify's Help Center, its columns include orders, total sales, discount amount and shipping. Pull it for the last 90 days and add one column of your own: discount amount divided by total sales. That gives you each discount's cost as a share of the sales it touched.

Then ask three questions of each row:

  1. Was it meant to still be running? A code created for one week that is still producing orders months later is the most common thing worth checking.
  2. Is the share of sales higher than you intended? If you meant a 10% offer and the number says otherwise, find out why.
  3. Does the code reach orders that would have happened anyway? The report cannot tell you this. You will need to judge it from who is using the code, for example a code posted on a public coupon site versus one sent to an email list.

Know how Shopify lets discounts combine

Stacking is a configuration setting, not an accident, but it is easy to forget what you set. Per Shopify's Help Center on discount combinations:

Order of calculation matters too. Shopify applies product discounts first, then order discounts on the revised subtotal, then shipping discounts. When there are several percentage-off order discounts, each is calculated on the original subtotal.

To test this in your own data, filter your orders export for orders where more than one discount was applied, and compare the combined discount against the subtotal. If the total is larger than you would have agreed to, change the Combinations setting.

What a discount does to margin

Margin is (net sales minus cost) divided by net sales. A discount lowers net sales but not your cost, so the margin falls faster than the discount suggests.

Hypothetical example, invented numbers: a product sells for $40 and costs $22. Gross margin is (40 − 22) / 40 = 45%. With a 20% discount the price is $32 and the margin is (32 − 22) / 32 = 31.25%. A 20% discount took off 13.75 points of margin, and the profit per order fell from $18 to $10. To earn the same total profit you now need 80% more orders at the discounted price (18 ÷ 10 − 1).

You can try your own numbers in the discount impact calculator. It runs in your browser and sends nothing anywhere.

Note that Shopify's profit reports calculate margin on net sales, so discounts and refunds reduce it, while the margin shown on a product's own page uses the full price. Both are correct; they answer different questions. We cover this in missing product costs.

A short routine

  1. Run Sales by discount codes for 90 days.
  2. Add discount amount ÷ total sales for each row.
  3. List every code that is older than its campaign.
  4. Check the Combinations setting on your three largest discounts.
  5. Pick one product and run the example above with your real price and cost.
  6. For each finding, write down the rows behind it. A finding without rows is a guess.

Discounts also interact with shipping and returns. A discounted order with free shipping and a refund can lose money even when the discount looked modest; see shipping and returns.

Prefer a second pair of eyes?

The Margin-Leak Audit reads your exports and ranks every place margin goes, with the rows behind each finding, for a fixed $199. Or start with the free Shopify Margin Leak Self-Check and do it yourself.

Sources

Help Center pages change. Check the current page before relying on a detail. Dollar figures above are invented examples, not benchmarks.

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