---
id: "claim-incremental-profit-variable-cost"
type: "claim"
source_timestamps: ["§ Avoid These Common Mistakes"]
tags: ["accounting", "pricing-floor"]
related: ["concept-variable-cost-pricing-floor", "contrarian-total-cost-fallacy"]
speakers: ["Rafi Mohammed"]
confidence: "high"
testable: true
sources: ["commercial"]
sourceVaultSlug: "hbr-seg-commercial"
originDay: 5
articleStem: "hbr-ext-22-art-of-discounting"
sourceUrl: "https://hbr.org/2026/05/the-art-of-discounting"
sourceTitle: "The Art of Discounting"
---
# Prices only need to clear variable costs to generate incremental profit

Mohammed claims managers falsely believe every unit sold must cover total costs (including overhead). In reality, as long as *total* revenue covers *total* costs, targeted discounts on **marginal units** can drop as low as the product's [[concept-variable-cost-pricing-floor|variable cost]]. Any sale made above variable cost to a customer who would **not** have purchased at full price yields **pure incremental profit.** This is the claim that dissolves the total-cost fallacy — see [[contrarian-total-cost-fallacy]].

**Confidence: high; testable: true.** Enrichment caveat: the direction is consistent with managerial economics and Mohammed's critique of cost-plus pricing, but the strong accounting formulation "set prices as low as variable cost" is an inference not fully validated in the supplied sources, and it ignores capacity/fixed-cost-recovery limits over the long run.