Discount Amount Formula
We all are eager about availing discounts, but we barely know how we get these discounts. There is a proper way to calculate discount and that we do by using a discount formula. The discount rate formula can either be extracted by subtracting the selling price of the product from its marked price or by multiplying the discount rate offered and the marked price of the product. In terms of Mathematics, the formula for discount is represented as below,
Discount = Marked Price – Selling Price
OR
Discount Percentage Formula = Marked Price × Discount Rate
Other basis Discount formula are as below:-
Discount = List Price - Selling Price
Therefore
Selling Price = List Price - Discount
List Price = Selling Price + Discount
Definition of Discount with Simple Discount Rate Example
The term “discount” refers to the pricing system in which the price of a commodity (goods or services) is lower than its marked price listed price. It is simply to say, 'discount' is a percentage of the listed price. A discount is a kind of price deduction in products that is noticed in consumer transactions, where the buyers have proposed a percentage of rebates on various products in order to boost sales. This rebate offered by the seller to buyer is known as a discount.
The discount is always calculated on the listed price while considering the selling price.
'Listed price' is the usual price of a commodity not inclusive of any discount.
'Selling price' is the amount we actually pay to acquire the commodity when we buy.
Rate of Discount
A discount has been offered when the price of an item is reduced and sold. The term "discount percentage" or "discount rate" refers to the price reduction represented as a percentage. The discount rate is calculated using the following formula:
Discount (percentage) = (List Price - Selling Price)/ List Price x 100
Discount % = (Discount/List Price) times; 100
SellingPrice = ListPrice−Discount
ListPrice = SellingPrice+Discount
Rate of Discount=Discount%= Discount/ListPrice×100
ListPrice = SellingPrice (100/100−discount%)
Successive Discounts
If two or more discounts are offered one after the other then such discounts are called the successive discounts or we also call them discounts in series. That said; assume a discount of 15 % is provided on an item. Then on the reduced price of the product, another discount of 12% is given. In such a case, we say that successive discounts of 15% and 12% are given.
For example, find a single discount equivalent to two successive discounts of 15% and 12% on an article.
Solution:
Let the listed price of an article be Rs 100.
Then, first discount on it = 15%
Price after the 1st discount = Rs (100 - 15) = Rs.85
2nd discount on the updated price i.e. = 12% of Rs.85
= Rs \[\frac{12}{100}\]\[\times\] 85 = Rs 10.2
Thus, Price after 2nd discount = Rs (85 – 10.2) = Rs. 74.8
Net selling price = 74.8
Single discount equivalent to offered successive discounts = (100 – 74.80) % = 25.2%.
There is a Thing Called Fake Discounts
Yes, there also exist Fake discounts, which we also sometimes refer to as fictitious pricing. It is actually a deceitful practice that some retailers involve in, wherein the presumed 'pre-sale price' of an article is immoderately increased, or the 'post-sale price' of an article is actually its market price. This is done basically to trick the consumers into thinking they are getting a discount, making them more likely to buy an article.
Solved Examples
Example1
In an apparel store, a sweatshirt that sells for Rs1500 is marked "10% off." Find out the rate of discount? What is the sale price of the sweatshirt?
Solution1
Assessment: Considering that the apparel store often sells goods for a discounted price. Essentially, a seller will discount a product by a percent of the original price. In this problem, a product that originally costs Rs1500 is being discounted by 10%. So "10% off" signifies the rate of discount. To solve this problem, we require following a procedure.
Procedure
The rate is generally given as a percent.
To calculate the discount, just multiply the rate by the original price.
To compute the sale price, deduct the discount from the original price.
Now that we have a procedure in place, we can simply solve the above problem
Solution: Given that the rate is 10%.
The discount is: 0.10 x Rs1500 = Rs150
Now, the sale price is reckoned as follows:
Original price = Rs1500
Discount - 150
Thus the sale price = Rs1350
Example2
A dealer purchased a microwave oven for Rs10000. He offered a discount of 20% on its listed price and still gains 10%. Find the listed price of the microwave oven.
Solution2
Cost price of the oven = Rs10000, Profit% = 10%.
Thus, selling price = {100 + profit %} /100 × CP
= Rs \[\frac{100+10}{100}\] × 10000
= Rs \[\frac{110}{100}\] × 10000
= Rs 11000.
Now, Let the listed price be Rs x.
Then, the discount = 20% of Rs. x
= Rs {x × ( \[\frac{20}{100}\] )}
= Rs 1x/5
Therefore, SP = (Listed Price) - (discount)
= Rs (x - 1x/5)
= Rs 4x/5.
But, the SP = Rs 11000
Therefore, 4x/5 = 11000
⇒ x = (11000 × 5/4)
⇒ x = 13750
Hence, the marked price of the microwave oven is Rs 13750
FAQs on Discount Formula
1. What is the meaning of discount?
We come across phrases like cost price, marked price and selling price when acquiring an item. Customers are given discounts by retailers in order to encourage sales. A discount is a refund or an offer offered to customers on the marked price of a product. Let's have a look at the relationships between these terms.
The reduction in the price of goods or services supplied by shops at the indicated price is known as a discount. This percentage of the rebate is typically offered to boost sales or clear out old inventory. The list price, also known as the marked price, is the price of an item as announced by the seller or manufacturer, excluding any discounts. After any reductions or discounts in the list price, the selling price is the actual price at which an item is sold. Discounts are sometimes referred to as "off" or "reduction." It should be noted that the discount is always applied to the article's marked price (List price).
2. What are the advantages of offering discounts?
Discounts on purchases are a great method to get people into your store quickly. You are more likely to grab a customer's attention if you tell him he can save money. Discounts are not beneficial to your customers, but they also help in the growth of your business. Discounts might be the secret potion that can help a business thrive. It can not only generate greater sales, but also build a better reputation for a business.
The advantages of offering discounts are given below:
Getting New and Returning Customers: Discounts serve as a ruse to attract more customers to your store because consumers want to buy products on sale. If you are offering discounts only for a limited time, ensure that you are mentioning it while promoting the discounted items. When people know they only have a few days to look around, they are more likely to rush in and look about. Because your store will be busier during the sale time, you may need to hire more personnel to provide smooth service.
Boost Your Sales Across the Board: Increased traffic usually means more sales – and not just on reduced items. Because the discounts attract more customers, you will have more prospective purchasers for other things in your business, as most people will browse to see what you have to offer before making a purchase. People will come to your store for the discount, but they may also buy other clothing products or accessories, such as jackets, shirts, and belts, if your clothing store offers a discount on the entire collection of your clothing.
Make Space in Your Store: You can clear up space in your store by discounting things. It is possible that items you do not intend to sell will sit in your store for months. By lowering the price, you improve the likelihood that they will sell, freeing up space for new products. Move discounted things that you don't plan on selling again to the front of the store to attract every customer's eye.
Enhance Your Reputation: A company's reputation may increase if it offers discounts to certain groups of individuals, such as the elderly or those in the military. When a business offers discounts to those who are in difficult situations or who may be experiencing financial difficulties due to a lack of income, it demonstrates that it is trying to help people. Because many people perceive firms to be greedy, any variation from that image can help to improve their reputation.
Obtain Sales Objectives: Many firms set sales goals on a weekly, monthly, quarterly, or annual basis. If a company is on the verge of falling short of its sales targets, offering discounts can help it meet and exceed those targets.
Cash Rebates Help you Save Money: Discounts may help your firm save money in addition to increasing sales if the offer involves payment methods. Credit and debit cards incur additional processing fees, resulting in a loss of money as compared to cash transactions. You benefit both the customer and your business by giving a small discount to those who pay with cash rather than credit or debit.
3. What are the disadvantages of offering discounts?
Discounts frequently appear to be a no-brainer strategy to increase sales or keep customers returning. In fact, it is possible that the opposite is true.
Your Company's Quality is Tarnished in the Eyes of the Public: It is simple: we all expect higher-quality items and services to be more expensive. Consider luxury brands such as Mercedes Benz, Louis Vuitton, and Tiffany.
Your pricing should be aspirational, just like those big-name brands. Price reductions damage your brand image, which is one of the negatives of discounts. Instead of instilling confidence in your company, you're encouraging buyers to have doubts about your products. This creates a potentially hazardous precedent.
It Can Lead to a Pricing War: One of the primary drawbacks of discounts is that it encourages people to shop around. When you cut the price of your products or services, you are forced to compete with larger corporations that have lower costs than a small business owner. Whatever price you set, someone will always be able to do it for less. A simple online search will provide your consumers with a plethora of possibilities, some of which may be less expensive than what you have to offer.
You will be able to win this game against a greater opponent for a long time, and you will almost certainly get undercut again. It is a dangerous cycle to get caught up in. It's quite tough to maintain the lead in a price war like this.
Your Profit Margins Will be Slashed if you Lower your Prices: One of the major drawbacks of discounts may be shown in this case. If your gross margin is 50% and you decrease your pricing by 20%, you'll need to grow sales by 67 percent to maintain your profit margin. It's unusual to see a sales increase that can compensate for a margin reduction. Use this simple grid to determine the cost of price cuts in your firm.
Only by lowering your cost of goods can you maintain your profit margin. How do you go about doing that? By slashing costs in some way or coercing your suppliers into lowering their prices. Unfortunately, small enterprises are unlikely to benefit from these strategies.
4. Do we have just one type of Discount?
There are typically three types of discounts which are as follows:-
Trade Discounts – This is a type of discount that is offered by a supplier to distributors. This discount enables distributors to differ their own prices, so that all items can be sold.
Quantity Discounts - This is a type of discount that the consumer receives a discount depending on the number of units purchased. All thanks to economies of scale!
Promotional Discounts - This is a type of discount which is quite beneficial for the sales promotion. This technique of granting discounts has emerged to be most preferable amongst shopkeepers. You've definitely seen one in the form of 50% + 20% off sale, or a buy 2 & get 1 free offer.
5. What is meant by Percentage Discount?
Percentage discount is a kind of discount that is offered on a product or service in the form of an amount per hundred. For such kind of discount amount formula, we suppose the original price as 100 and deduct the discount percentage from it. For example, a percentage discount of 10% would indicate that a commodity that originally cost Rs 100 would now cost Rs 90. This is also quite common practice with promotional and seasonal sales, as a way of influencing consumers to purchase an item at a reduced cost and ultimately boost sales.