A discount comes entirely off your gross margin, because your purchase price stays the same. That is why 30% off a coat costs much more than 30% of what you earn on that coat. In the worked example in this article less than half of the gross margin is left.
If you advertise with a was price and a now price, fixed rules have applied since 1 January 2023. The was price is the lowest price you charged in the 30 days before the discount. For the sale, in which you increase the discount step by step, there is a three-month exception.
In short
- A discount comes entirely off your gross margin. On an item with a 50% gross margin, 30% off costs more than half of that margin.
- A was price must be the lowest price you used in the 30 days before the discount, in the shop and online.
- If you increase the discount step by step, you may keep the was price from before the first discount for up to three months, as long as you do not raise the price in between.
In this article
- How much gross margin does a discount cost?
- How much more do you need to sell to keep the same margin?
- Which was price may you use with a discount?
- What applies if you increase the discount step by step in the sale?
- What applies to an item that has only just come in?
- What do you risk with a fake discount?
- How do you plan markdowns so that margin is left?
How much gross margin does a discount cost?
The full discount amount, excluding VAT. Your purchase price does not change when you mark down. So what the customer pays less comes entirely off your gross margin. Gross margin is the sales excluding VAT minus the purchase cost of what you sell.
A worked example. A coat costs € 100 including 21% VAT, which is € 82.64 excluding VAT. You bought it for € 40. Your gross margin is € 42.64, or 51.6% of sales excluding VAT.
At 20% off the customer pays € 80, € 66.12 excluding VAT. € 26.12 of margin is left. At 30% off € 17.85 is left, and at 50% off only € 1.32. In this example a 30% discount therefore costs you 58% of your margin on that coat.
How much more do you need to sell to keep the same margin?
That depends on the discount and on your margin. In the example, at 20% off you need to sell 1.6 coats for the margin of one coat at full price. At 30% off it is 2.4 coats, and at 50% off more than 32.
The lower your margin, the sooner a discount hurts. If you have a 40% margin on an item, a 40% discount wipes out the whole margin. So calculate per product group with your own purchase prices and your own margin.
Even so, marking down can be the best choice. A coat that stays on the rail earns nothing and costs space and money. At the end of the season the question is not what the coat cost you, but what it can still bring in. So the question is not whether you mark down, but when and by how much.
Which was price may you use with a discount?
The lowest price you used in the 30 days before the discount. When announcing a price reduction, the seller states the lowest selling price it applied in a period of at least thirty days before the discount (Product Price Indication Decree, article 5a, Bulletin of Acts and Decrees 2022, 485). This has applied since 1 January 2023.
The ACM explains it like this: compare your offer price only with the lowest price you used in the past 30 days. If your was price is not that lowest price, you may not pretend there is a discount. You may then not cross out the price or add a discount percentage (ACM, stating prices).
If you had an item on offer for a short time, that offer price counts. If a coat was € 79.95 for one week three weeks before the sale, then € 79.95 is your was price, even if it cost € 89.95 the rest of the time.
If you use words such as recommended price or normal price, state right next to them what they mean (ACM, stating prices). So a brand's recommended price is not a licence to show a higher was price than you charged yourself.
What applies if you increase the discount step by step in the sale?
Then for up to three calendar months after the first discount you may keep using the was price from before that first discount. That is in article 5a, third paragraph. The ACM puts it like this: if you give discount on discount directly one after the other within 3 months, you state the lowest price in the 30 days before your first offer (ACM, stating prices).
The explanatory note to the decree gives the example of first 20% off, then 30%, then 50%. The exception is meant for selling old stock, for example last season's collection (Explanatory note, Bulletin of Acts and Decrees 2022, 485). That fits the sale of a clothing shop.
If you raise the price in between, the exception ends. From that moment the normal 30-day rule applies again. After three months the normal rule also applies again. So record in your till system on which day the first discount started.
Clothing does not fall under the exception for products that perish quickly. For those you may state the price directly before the discount. According to the explanatory note, products that do not have a limited shelf life, such as clothing and furniture, fall under the normal rule (Explanatory note, Bulletin of Acts and Decrees 2022, 485).
What applies to an item that has only just come in?
If an item has been on the market for less than 30 days, you may state the lowest price over a period that you state yourself (Product Price Indication Decree, article 5a, fourth paragraph). The ACM says: then state the lowest price since the product came on the market (ACM, stating prices).
For a clothing shop this matters for a discount shortly after delivery, for example an opening offer for a new brand. In that case add over which period the was price applies.
What do you risk with a fake discount?
A fine from the ACM. In 2024 the ACM fined five businesses a total of € 621,000 for fake discounts in their web shops, including in clothing (ACM, ACM fines web shops for fake discounts).
One of the examples: a product was offered from € 699 for € 629. In the 30 days before it cost € 539. So the customer paid more than shortly before, while it looked as if there was a discount.
The rules apply to every seller to consumers, so to a small shop as well. If you also have a web shop, keep track of the prices in the shop and online separately if they differ, so that you can show the lowest price of 30 days per channel.
How do you plan markdowns so that margin is left?
With figures instead of gut feeling. Researchers worked with a large fashion chain on a method that forecasts the sales per item and chooses the discount based on that. In a controlled field experiment in all stores in Belgium and Ireland in autumn and winter 2008 this brought about 6% more revenue in the clearance sale (Caro and Gallien, 2012).
That was a chain with many stores and its own pricing team. An independent shop can still use the principle: look per product group at how fast it sells and how much is still on the rail, and mark down first what moves slowest.
- Keep the purchase price, the original price and every price change with its date for each item.
- For each discount step, work out how much margin per item is left.
- Start the sale on a fixed date and keep the steps within three months.
- After the sale, compare the season's gross margin with last year.
Sources
- Decree of 30 November 2022 amending the Product Price Indication Decree (Besluit prijsaanduiding producten), article 5a, with explanatory note, Bulletin of Acts and Decrees 2022, 485. officielebekendmakingen.nl
- ACM, Stating prices (Prijzen vermelden), accessed 28 October 2026. acm.nl
- ACM, ACM fines web shops for fake discounts, 11 June 2024. acm.nl
- Caro, F. and Gallien, J. (2012). Clearance pricing optimization for a fast-fashion retailer. Operations Research, 60(6), 1404-1422. doi.org/10.1287/opre.1120.1102