Discount Calculator

The Psychology and Math of Discounts, Explained in Depth

The same "50% off" can be a genuine win for one shopper and a marketing trap for another. Between the advertised discount rate and the money that actually leaves your wallet lie three hidden variables: the credibility of the list price (the anchor), the order in which stacked discounts are applied, and how VAT is handled. This article goes beyond the basic discount formula to cover where people get fooled in real life and what your "effective discount rate" really is.

N% off then an extra M% off is never (N+M)%

This is the most common misconception. Reading 30% off plus an extra 10% coupon as "40% off" leaves you feeling shortchanged, while stores sometimes advertise it as if it were a "40% sale." The real math is multiplication. The two discounts compound, so the remaining fraction is 0.7 × 0.9 = 0.63 — an effective discount of 37%. That is always 3 percentage points short of the simple sum (40%). The general rule is effective discount = 1 − (1−N)(1−M), or equivalently the sum of the two rates minus their product (N×M).

So for 30% and 10%: 0.30 + 0.10 − (0.30×0.10) = 0.40 − 0.03 = 0.37. The more discounts you stack, the wider the gap between the summed figure and the real one. The math for chains of three or more discounts is covered in depth in a separate guide.

Worked example — list price 50,000 won, 30% off then an extra 10% coupon

Let's follow exactly what the receipt shows, step by step. The key point is that the result differs from applying a single 40% to the same 50,000 won.

An honest single 40% would have been 50,000 × 0.6 = 30,000 won. In other words, "30% plus an extra 10%" costs 1,500 won more than a flat 40%. When an ad says "up to 40% off," that 40% is usually a simple sum or limited to a specific combination, so it pays to check the actual number on the final checkout screen.

Stacking order and "points are not a discount"

When coupons, card discounts, and reward points mix, the order of application changes the final price. Generally a percentage discount should come first and a fixed-won discount last for the shopper's benefit, but if a store's rules force the fixed coupon first, your effective rate drops. The bigger trap is reward points.

• Instant discounts (coupons, card): reduce the amount you pay now and feed directly into your effective discount rate.
• Reward points: the cash you pay now is unchanged — points are future value usable on a "next purchase." A 5% reward is worth less than a 5% instant discount because of expiry, minimum-spend conditions, and the risk of never using them.
• Interest-free installments: not a discount at all. The total you pay is identical; it's a device that can encourage impulse buying.

Anchoring on the list price, and the real discount of 1+1 vs 2+1

Because of the anchoring effect from behavioral economics, we judge the sale price against the "list price" we see first. The catch is that the list price may be an inflated number the item was never actually sold at. In that case, compare your actual payment against the usual going rate (or the lowest price elsewhere), not against the list price, to know whether it's a real bargain.

Bundle deals also defy intuition. 1+1 is 50% off (two items for the price of two means half-price each), but 2+1 is about 33.3% off (three items for the price of two = 2/3 of the price, so 1 − 2/3 ≈ 33.3%). Despite how generous "get one more" sounds, the effective discount of 2+1 is only two-thirds that of 1+1. And if you end up buying a second or third item you don't need, the unit price falls but your total spending rises.

Discounting on VAT-inclusive prices, and a common mistake

Consumer prices in Korea usually include 10% VAT. The discount rate stays the same whether applied to the VAT-inclusive price or not, so it doesn't matter for the shopper. But a business calculating margin must work from the supply value (excluding VAT) to be accurate. Confusing discount rate with margin rate is another frequent error: a 30% discount does not mean margin falls by 30 points. The higher the cost, the more a small discount eats into margin. If you need to separate margin from supply value, use a VAT calculator alongside this one.

• Use the discount calculator to instantly find the effective rate of multi-step discounts.
• Use the VAT calculator to split supply value from VAT and compute margin accurately.
• For the math of stacking three or more discounts, see the discount stacking math guide.