Tag Archives: spreadsheet

Calculating volume discounts for software

discount.jpgIf people buy your software in bulk they expect to get a discount. But how much of a discount should you give them? A simple formula I have seen used is:

discounted price = unit price * n^f

Where n is the total number of units purchased and f is a scaling factor between 0 and 1. So, for example, if my unit price is 24.95 (pounds, dollars etc) and f is 0.8, the discounted price for 10 units is = 24.95 * 10^0.8 = 157.42, which you can then round to a more aesthetically appealing number.

This is a little over-simplistic, as it doesn’t take account of the cost to you of each unit (for example the duplication and postage cost of CDs and the cost of payment processing). We can get around this by breaking the price into a fixed cost and a margin and only applying the discount to the margin. Below is a link to a simple Excel spreadsheet that does this for you. You can change any of the values in the orange fields. f seems to give sensible results in the range 0.75 to 0.9.

discount_spreadsheet1.png

discount spreadsheet (29kb, Excel 97-2003 format)

This spreadsheet can be useful to give you a starting point, but you also need to consider what the customer is prepared to pay. You maximise your profit by giving the buyer the minimum discount that is required to make the sale. For example, a reseller is out to make a profit and will probably expect a bigger discount on the same number of units than a large company buying in bulk for their end users. When in doubt, reduce the discount. You can always increase it a bit later if they don’t buy.