How To Calculate Discounts
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The percent-off formula
Discount math looks obvious — 20% off $50 is $10 off, right? Yes, but retailers layer discounts, add taxes on discounted prices, swap percent-off for dollar-off, run BOGOs that aren’t actually BOGOs, and anchor prices against MSRPs that never existed. Getting this math fluent protects you from “savings” that cost you money and helps you spot the rare genuinely good deal. This guide covers the formulas you need for every common discount structure, plus the psychological traps baked into how sale prices are presented. The difference between “30% off” and “30% off plus 20% off” is not 50%, and that gap is where most people leave money on the table.
Stacked discounts don’t add — they multiply
Sale price equals original price times (1 minus discount rate). So a $80 item at 25% off:
Dollar-off vs percent-off
The order doesn’t matter — multiplication is commutative. But every additional percentage discount gets applied to a smaller base, so the marginal savings shrinks.
BOGO math — usually 25%, not 50%
$20 off a $40 item is 50% off. $20 off a $400 item is 5% off. Dollar discounts feel bigger on cheap items and smaller on expensive ones, while percent discounts feel the opposite. Retailers pick the framing that sounds larger. When you see both, convert to the same unit.
Tax is applied after discount
“Buy one get one 50% off” sounds like half price. It’s not. You’re paying full price for one item and half price for the other — blended rate is 25% off.
Reverse-calculating the original price
BOGO only works if you actually want two. Buying a second item you don’t need at 50% off is not a discount — it’s a purchase.
MSRP psychology and fake anchors
A few states with coupon-specific rules treat manufacturer coupons differently from store discounts. Check your state.
Clearance tiers and markdowns
When you see only the sale price and the percent off, work backwards:
Coupon codes: site-wide vs category vs item
Useful for checking advertised “save $X” claims — does the math actually work?
The “loss-leader” trap
“Was $200, now $120” feels like a deal. But if nothing ever sold at $200 — the MSRP was a phantom anchor — the $120 price is just the price. Retailers have been sued for this, and many states now require the MSRP to have been a genuine selling price within the past 90 days. Always check the item’s price history via browser extensions or price-tracking sites before trusting the anchor.
Common mistakes
Retail clearance usually runs through predictable tiers: 25% off, then 40%, then 50%, then 60%, then final. Each week the markdown deepens but inventory thins. The game is guessing how many weeks the item will survive at your size. A good rule: if you’d pay today’s price without regret, buy; if you’re gambling on another markdown, assume it sells out first.
Run the numbers
Coupon codes apply in a specific order set by the retailer. Typical order: