How do you calculate a discount?
Published
Discount calculation determines the reduction from the original price or the final price after discount. It appears in quotations, sales invoices, campaigns, and early-payment terms.
The examples on this page use a fictional business (Al Waha Office Supplies). Figures are illustrative only and are not real business data or sector benchmarks.
Short answer
Discount calculation shows how much the price decreases and what the customer finally pays. In invoicing, the key is knowing whether the discount is applied to a line or the whole invoice, and whether VAT is calculated before or after it according to the case.
Formulas
Discount amount = Original price × Discount percentagePrice after discount = Original price - Discount amountDiscount percentage = Discount amount ÷ Original price
Example 1: invoice discount
An invoice before VAT is SAR 2,000 with a 10% discount.
Discount = 2,000 × 10% = SAR 200Net price = 2,000 - 200 = SAR 1,800VAT = 1,800 × 15% = SAR 270Total = SAR 2,070
Example 2: finding the percentage
The old price was SAR 500 and the new price is SAR 425.
Discount amount = 500 - 425 = SAR 75Discount percentage = 75 ÷ 500 = 15%
Common mistakes
| Mistake | Effect |
|---|---|
| Calculating VAT before the trade discount | Tax and total are inflated |
| Confusing a trade discount with a settlement discount | Wrong accounting and tax timing |
| Showing a discount without stating whether the price includes VAT | Confusion with the customer |
Line discount or invoice discount?
| Type | When used | Effect |
|---|---|---|
| Line discount | Offer on a specific product | Affects that line only |
| Invoice discount | Negotiated total order discount | Applies across the invoice |
| Early-payment discount | Payment term | Treated when the condition is met |
Example 3: fixed amount discount
An invoice before VAT is SAR 1,200, with a fixed discount of SAR 150.
Net before VAT = 1,200 - 150 = SAR 1,050VAT = 1,050 × 15% = SAR 157.50Total = SAR 1,207.50
Effect of discount on margin
| Situation | Result |
|---|---|
| Product margin is 20% and discount is 5% | Discount consumes roughly a quarter of margin |
| Product margin is 10% and discount is 10% | Profitability may disappear |
| Large discount on low-margin item | Needs approval or permission limit |
Product angle
This page can lead users toward creating a quotation or invoice in Haseem. Keep the internal link natural: after explaining discount, show how it appears on invoices and credit notes.
Frequently asked questions
Is discount calculated before or after VAT?
In a standard commercial invoice, the discount is applied to the taxable item amount, then VAT is calculated on the net taxable amount.
What is the difference between 10% off and SAR 10 off?
The first changes with the price. The second is a fixed amount.
Does a discount need a credit note?
If it is granted after the invoice is issued, a credit note is usually needed.