Discount Rates
The effect of single vs. multiple discounts.
A discount is a deduction in percentage from the original price offered by the supplier.
- the base is the original price of the item - or the "list price"
- the price after discount is the "net price"
Single Discount
A single discount can be estimated as
N = L (1 - i /100) (1)
where
N = net price
L = list price
i = discount rate (%)
Example - Single Discount Rate
With a list price of 500 and a single discount rate of 25% - the net price can be calculated as
N = (500) (1 - (25%) /100)
= 375
Multiple Discounts
Discounts are often offered in multiple terms. The net price with multiple discounts can be calculated as
N = L (1 - i1 / 100) (1 - i2/ 100) ... (1 - i N / 100) (2)
where
i 1..N = discount rate for term (%)
Example - Multiple Discount Rate
With a list price of 500 and a two multiple discount rates of 25% and 10% (25 - 10) - the net price can be calculated as
N = (500) (1 - (25 %) / 100) (1 - (10 %) / 100)
= 337.5
Single and Multiple Discounts Table
The table bellow can be used as a shortcut to calculate net price with multiple discount terms.
| Discount (%) | Net Price Factor |
|---|---|
| 10 | 0.9 |
| 10 - 10 | 0.81 |
| 20 | 0.8 |
| 20 - 5 | 0.76 |
| 20 - 5 - 5 | 0.722 |
| 20 - 10 | 0.72 |
| 20 - 10 - 10 | 0.648 |
| 25 | 0.75 |
| 25 - 5 | 0.7125 |
| 25 - 5 - 5 | 0.6769 |
| 25 - 5 - 10 | 0.6413 |
| 25 - 10 | 0.675 |
| 25 - 10 - 5 | 0.6413 |
| 25 - 10 - 10 | 0.6075 |
| 25 - 10 - 10 - 5 | 0.5771 |
| 30 | 0.7 |
| 30 - 5 | 0.665 |
| 30 - 5 - 5 | 0.6318 |
| 30 - 5 - 10 | 0.5985 |
| 30 - 10 | 0.63 |
| 30 - 10 - 5 | 0.5985 |
| 30 - 10 - 10 | 0.567 |
Example - Net Price with 25%, 10%, 10%
The net price of a list price 500 with multiple discount rates as 25%, 10%, 10% and 5% - or (25 - 10 - 10 - 5) in the table above - can be calculated as
N = 0.5771 ( 500)
= 289
Related Topics
-
Economics
Engineering economics - cash flow diagrams, present value, discount rates, internal rates of return - IRR, income taxes, inflation.
