What are Price Breaks?
Price breaks, sometimes called bulk discounts, are ways of setting prices so customers can get a lower cost per unit when they buy more. Customers are more likely to buy more when prices are set this way, which helps businesses make more money and sell more.
Most of the time, price breaks are set up in several tiers. The first tier may have the lowest price per unit for buying one item. As the customer moves up, the prices per unit for buying more items get lower and lower. In this case, a business might give the following price cuts for buying a lot of their product:
- Tier 1: Buy 1 item for $10/unit
- Tier 2: Buy ten items or more for $9/unit
- Tier 3: Buy 50 items or more for $8/unit
- Tier 4: Buy 100 items or more for $7/unit
This means that if customers bought ten or more things, they would get a lower price per unit than in the first tier. If a customer bought 50 or more things, the price per unit would go down even more, and so on.
Synonyms
- Quantity price breaks
- Volume discounts
Why Companies Offer Price Breaks (Volume Discounts)
There are price cuts because they help businesses make more money in the long run. Customers are encouraged to buy more, raising the average order value (AOV) and bringing in more business money.
Price breaks can also be used to differentiate products within the same category. Companies can get more of the market by undercutting their rivals on price.
In addition, price breaks can help keep customers coming back and get people to buy more when they want to save money on each item.
Generally, a supplier will only give a price break for buying in bulk if it helps them save money. Setting prices often works well for B2B manufacturing and sales, but it doesn’t always work well for B2C businesses.
Why price breaks are good
Price breaks are suitable for both buyers and sellers in many ways. Buyers get good deals on items they will buy anyway, and sellers make more money because of higher AOV and sales.
Good things for sellers
- The average order value, or deal size, is higher. By giving customers a discount for buying more, companies that offer bulk prices increase the average size of their deals.
- A better job of making sales. It’s easier to meet (and beat) sales goals when customers don’t have to think twice about placing more oversized orders.
- Increase in sales. Combining bigger deals with better sales success helps businesses make more money on the top line.
- Lower costs for managing supplies. According to research, the total cost of having too much inventory is between 25% and 32% of yearly sales. This includes freight, storage, insurance, theft, taxes, and other costs related to the inventory. To lower this cost, businesses sell their inventory more quickly.
- Customers are more loyal and will buy from you again. Price breaks keep customers around longer and raise lifetime value (CLV), which is especially important for businesses that make money from one-time sales.
- The speed of operations. Buyers who buy more in more diminutive amounts often free up the customer service, sales, and supply management teams to help more customers and grow their businesses.
Good things for customers
- They are lowering costs in the long run. When the buyer buys enough to meet their future needs, it practically puts money back in their pocket.
- Budgeting and supply chain control that you can count on. Break price gets companies to buy specific amounts (or more) of their vendor’s goods, making it easier to plan when and how much money to spend on them.
- A better experience for the customer. When businesses offer volume discounts, their clients don’t have to worry about the extra costs of buying and shipping small amounts of goods monthly.
- They have made partnerships with suppliers stronger. Customers and suppliers benefit from economies of scale and depend on each other to get things done faster.
How to Figure Out Price Breaks Based on Quantity
You can use Excel or Google Sheets to make a formula to help you figure out price breaks based on numbers. This will make it easy for you to determine the suitable discounts based on how many things you buy.
If you want to make a formula for number price breaks in Excel, here are the steps you need to take.
Step 1: Get your information ready.
Start by putting your information in a clear and organized way. Make a table with columns for the product, the discount percentage, the minimum quantity for each price break, and the highest quantity for each price break.
As an example:
| Product | Min. Quantity | Max. Quantity | Discount % |
| Item A | 1 | 9 | 0% |
| Item A | 10 | 49 | 5% |
| Item A | 50 | 99 | 10% |
| Item A | 100 | 500 | 15% |
Step 2: Write down the formula
You can use the IF function and the AND function in Excel to make a formula for price breaks based on numbers. You can do a rational test with IF and check if more than one condition is met with AND.
Here is an example of a formula:
=IF(AND(B2>=MinQuantity, B2
Step 3: Use the equation
Choose the cell where you want to show the discount rate and type in the formula you made in Step 2.
To use the method, press “Enter.”
Step 4: Find the price that has been lowered.
As soon as you know the discount rate, you can multiply the original price by it to get the discounted price.
Enter this number into the formula:
=OriginalPrice * (1 – DiscountPercentage)
Change the original price and discount percentage to the cell references that match.
Step 5: Add the code to more than one cell.
Finally, copy the formula to other cells in your spreadsheet to use the price breaks for different things or quantities.
How CPQ Can Help You Handle Prices and Discounts Pros of Using CPQ for Prices and Discounts
Price breaks are done automatically by rules-based dynamic discounts in CPQ software. When a buyer or seller places an order in CPQ, the algorithm reads the company’s pricing rules, matches them to the order, and gives discounts based on what it finds.
Businesses no longer have to do math by hand, speeding up the process of making quotes and orders and stopping mistakes from human error.
How to Use CPQ to Quote Price Breaks Based on Quantity
With CPQ, explaining discount plans based on business sales rates is easier. Each CPQ program handles this a little bit differently, but you can typically see what discounts are currently in effect and what additional discounts customers can get by purchasing more.
In short, this is how it works:
- Name the products or bundles of products, list the lowest and highest amounts for each price break, and give each a discount percentage.
- Set a price for the item or group as a whole.
- Based on the numbers and conditions you set earlier, make a pricing rule that gives discounts as the quantity increases.
- Turn on the discount rule in your CPQ system. From now on, it will be used for all quotes and sales.
