The discounts on the price of an item is a type of sales promotion traditional and very effective if properly planned.
The immediate purpose of a commercial discount is to boost the sales of a certain product or service, a discount also allows to increase the client portfolio, make inventory management and the operating cycle or cash cycle more efficient, which can have a favorable impact on the profitability levels.
However, you must be careful before cutting your prices in half and ensure that the effect of offering discounts is as desired. The government of the State of Victoria in Australia, published a correlative study through which, the percentage of gross margin and the discount that you would expect to offer are linked with the sales boost that you must achieve in order not to have adverse effects.
For example, if your gross margin is 35% and you are planning to offer a 15% discount on your prices, you must ensure that your promotional tactic boosts your sales income by at least 75%, that is, your sales objective should be billing 1.75 times more than current, to avoid an unfavorable impact on your current results. Requirement that increases as your gross margin decreases and the discount in prices that you intend to offer increases.
To achieve effectiveness in these estimates, it is important that you analyze factors such as your sales force and distribution channels, operating results, break-even points, and trends in the target market.
This time we present to you how to calculate a 20% discount and other forecasts when offering price discounts.
20% discount pros and cons
Do not forget what we suggested at the beginning of the article, if it is tempting to offer a 20% discount, remember to review your gross margin and your sales goals to avoid negative effects.
An impromptu discounting tactic can lower your profit margins, customers may perceive a negative image of deception, use, or that you are simply “trying to sell off a commodity that no one wants.”
On the positive side, indeed, a sign with an impressive 20% discount on your merchandise will definitely attract the attention of customers. It is an opportunity to attract visitors to your counter.
A 20 percent discount can make you better manage your inventory, solving excess merchandise, liquidity problems or those items that are difficult to sell.
For Azentral.com “all customers appreciate a discount”, and it is likely that some will visit your store again and use your services if the discount you offer is as attractive as 20 percent or more.
Definitely offering a discount on the price must go hand in hand with the perception of quality-value, that perception can retain customers and achieve the planned objectives.
Steps to calculate a 20% discount
On the buyer’s side, finding discounts when we go shopping can make the occasion much more tempting, due to the additional savings we get by purchasing the product at the time. That is the function of the discount, to create a mental perception that we are acquiring an item below its fair value to drive the stimulus of the purchase.
However, a discount will not always put the item within our budget. First of all, pen and paper or activate your calculator App! Let’s see how to calculate the discount.
In order to find out if a discount makes an item affordable, you need to find out how much the product is going to cost after the discount. For rebates measured as a percentage, the amount of the discount depends on the original price of the item.
To calculate the price of a discounted item, that is, the net amount to pay, you only need two values: the original price of the item and the percentage of discount to apply, in our case 20 percent discount.
You can then find the value to pay, subtracting the value of the discount from the original price. This is a simple game of arithmetic operations that you can perform manually with a digital calculator application.
First: Divide 20 by 100 to convert 20 percent (the discount offered ) to a decimal 0.2.
As a second step: Multiply 0.2 by the price of the original item to calculate the amount of the discount. For example, if the original price of the item is $ 80, you would multiply 0.2 by $ 80, which gives you $ 16.00
Finally: Subtract the value of the discount from the original price of the item so that you get the net amount to pay with the discount included. In our example, you would subtract $ 16.00 from $ 80 to get the value of the discounted price of $ 64.00.