How to Know If Your Promotions Are Actually Profitable

Key Takeaways

• Not all promotions are created equal. Some lift volume. Others just kill your margin.

• Most founders underestimate total trade costs—the real impact is rarely just the discount.

• Measuring promo lift requires baseline velocity, not gut instinct.

• Contribution margin math helps expose when a promo leads to more revenue but less profit.

• Smart founders use a rerun framework to avoid repeating unprofitable programs.

A retailer asks you to support a BOGO to move volume. You’re a new founder, trying to keep shelf space, trying to keep the buyer happy. So you say yes.

The promo runs. Sales bump slightly. Your distributor is pleased. But when you sit down a month later and look at your bank account, you’re confused: Why didn’t we make more money?

You’re not alone.

Founders get asked to run promotions constantly, and it’s easy to feel like you have to say yes. Here’s the truth: you don’t. You can negotiate. You can say no. And when you say yes, you can do it with math on your side.

This guide breaks down how to evaluate whether a promotion is actually profitable, using real numbers, real logic, and real strategic filters—not hope.

Start With the Goal: What Are You Trying to Achieve?

Before you touch a spreadsheet or approve a retailer program, you need clarity: what is this promotion supposed to do? The answer shouldn’t be “make more money” or “move units.” It should be specific, tactical, and measurable.

Maybe you want to build trial for a new SKU. Maybe you’re trying to clear aging inventory. Maybe your buyer is putting pressure on you to support a TPR to boost their category numbers. Each of those situations has a different definition of success.

Trial-based promos might focus on household penetration or post-promo retention. Liquidation-driven promos might be judged on net cash impact. A buyer appeasement play might be more about relationship equity than margin.

This is why success metrics need to match the intent. Don’t run a trial promo and then judge it solely on short-term profit. And don’t run a margin-driven promo and accept trial as a consolation prize. Get clear before you say yes.

Calculate the Full Cost of the Promotion

Here’s where most promotions go off the rails: founders assume the cost is the face value of the discount. But in the real world of retail, promotions have layered costs that quietly stack up.

Let’s walk through an example. Say your MSRP is $5. A $1 off promo sounds reasonable, right? Not when you follow the actual flow of dollars:

That $1 is just the start. Your distributor still takes their percentage off the discounted price. Your retailer still holds their margin. Brokers might take a fee. You might owe billbacks or get hit with chargebacks for compliance misses. And if the promotion causes a last-minute fulfillment scramble, you might be paying higher freight rates too.

By the time you run the numbers, your $1 discount might turn into $2.75 in lost revenue per unit.

This is why gross-to-net modeling matters. You need to see the full picture of what a promotion truly costs—not just what it looks like on a sell sheet.

Measure the Lift: Did You Actually Sell More?

Promotions are designed to move volume. But that doesn’t mean every bump in sales is a win.

Start by calculating your baseline. Look at unit sales per store per week for four to six weeks before the promotion. Then compare that to unit sales during the promotional window. Subtract the two, divide by the baseline, and you’ve got your lift percentage.

But don’t stop there. Ask whether other variables might explain the lift. Did the promotion run during a holiday weekend? Was it supported by paid media? Did multiple SKUs move together, or was the lift concentrated on a single item?

Even more importantly, dig into the quality of the volume. If most of the lift came from stock-up behavior or pantry loading, your future baseline might suffer. If it came from real trial and conversion, you might see a post-promo velocity bump.

The lesson: sales lift is only helpful if it’s understood in context. Raw unit gains aren’t proof that a promotion worked.

Model the Contribution Margin: Was It Worth It?

Once you know what you sold and what it cost, you need to model what you made.

Contribution margin is the math that determines whether a promotion was profitable. It looks like this:

Contribution margin per unit = Net revenue – COGS – variable costs

If your contribution margin drops too low, even a strong lift might not save you. It’s entirely possible to sell 50% more and still make less money than you would have at baseline.

Here’s a quick example. At baseline, you sell 1,000 units at a $3.75 net revenue with $1.50 COGS and $0.25 in variable costs. That’s $2.00 in contribution per unit, or $2,000 in profit.

Now imagine a promo lifts your sales to 1,500 units, but net revenue drops to $3.00 and variable costs increase to $0.35. Your new contribution is $1.15 per unit—just $1,725 total.

You sold more. You made less. That’s why contribution margin needs to be part of every promo evaluation. Without it, you’re just guessing.

Build a Rerun Framework: Should You Do It Again?

Most founders run promotions and then move on. But if you never evaluate the results, how do you know what to improve—or avoid—next time?

A good rerun framework helps you assess whether a promotion was worth it, and whether it’s worth repeating. It should cover key areas:

• Did the promo hit its goal (trial, lift, margin, etc.)?

• Was the contribution margin acceptable?

• Did baseline velocity improve after the promo ended?

• Were there negative operational side effects (stockouts, returns)?

• Did the buyer ask to rerun it—and can you negotiate better terms?

Assign scores to each area and keep a running log of past promotions. This lets you spot patterns, test improvements, and stop repeating the same mistakes just because a promotion “felt like it worked.”

Promotions should be part of a larger trade strategy and not just reactive one-offs. A rerun framework gives structure to that strategy.

Profit Isn’t Optional. It’s the Point.

At the end of the day, promotions are a major line item on your P&L. They can fuel growth, expand trial, and unlock buyer goodwill—but only if they’re executed with financial clarity.

That means modeling total cost, measuring real lift, calculating contribution margin, and making every rerun decision based on actual results.

Promotions aren’t just as much marketing as they are strategy. And at BBG, we help founders treat them that way.

If you’re tired of guessing at promo ROI or spending money that doesn’t move the business forward, we’ll help you build a smarter, margin-aware trade plan that aligns with your growth goals.

Talk to us to build a promo evaluation model, structure future discounts with clarity, and take control of your trade spend.

FAQs

How can I estimate the long-term impact of a promotion on repeat purchases?

Track post-promo velocity and customer retention for at least eight weeks after the deal ends. If unit sales quickly drop below baseline, the promotion likely attracted bargain hunters, not loyal customers. True long-term value shows up when a portion of those trial shoppers convert into steady repeat buyers. You can also pair POS data with CRM or subscription metrics to see whether those new households buy again at full price.

What’s the difference between trade spend and consumer marketing spend?

Trade spend is the money you spend within the retail system—discounts, billbacks, slotting, display fees, and promotional allowances. Consumer marketing spend is what you invest outside the retailer to drive shopper demand, such as digital ads or influencer partnerships. Many founders mix the two when budgeting, which makes it hard to know whether poor promo ROI stems from weak retailer execution or from insufficient consumer pull. Keeping them separate lets you judge effectiveness more clearly.

How do I handle retailer pressure to participate in every promotion?

You can negotiate from data, not emotion. Show the buyer your contribution margin and velocity analysis to demonstrate when a promotion doesn’t make financial sense. Offer alternative value instead—like funding in-store sampling, improved packaging, or exclusive sizes. Retailers want category growth, not brand burnout. When you prove you understand your numbers, they’ll respect a “no” that’s backed by logic.