A discount is a reduction in the price of a service or a product. Discount is a common technique used by business people to attract new customers, to increase sales, and to retain the existing customers.
Discount is a rebate or an offer given to the customers on the marked price of products. While purchasing an item, we come across various terms like cost price, marked price, discount, and selling price. In order to increase the sale of goods, shopkeepers offer discounts to customers. Let us have a look at how these terms are related to each other.
| 1. | Discount Definition |
| 2. | Discount Formula |
| 3. | Discount Calculation |
| 4. | Discount Rate |
| 5. | Types of Discounts |
| 6. | FAQs on Discount |
Discount Definition
Discount is the reduction in the price of goods or services offered by shopkeepers at the marked price. This percentage of the rebate is usually offered to increase the sales or clear the old stock of goods. The List price or Marked price is the price of an article as declared by the seller or the manufacturer, without any price reduction. The selling price is the actual price at which an article is sold after any reduction or discounts in the list price. "Off", "Reduction" are some common terms used to describe discounts. It should be noted that a discount is always calculated on the Marked price (List price) of the article.
Discount Formula
The formula to calculate the discount is:
- Discount = List Price - Selling Price
- Discount (%) = (Discount/List Price) × 100
Here, the last formula is used for the calculation of the discount percentage.
The discount calculation can be done in two cases:
- When both the list price and selling price are given, we use the discount formula: Discount = List Price - Selling Price.
- When the discount percentage is given, then we use the following procedure.
Discount Calculation
Here is the process of discount calculation when the discount percentage is given.
- Step 1: Convert the discount percentage into a decimal by dividing by 100.
- Step 2: Multiply the list price by the decimal to get the discount.
- Step 3: Subtract the discount from the list price to get the value of selling price.
Note that if we are asked to find the discount, then only do till Step 2. If we are asked to find the selling price (or the price at which the customer buys the product), then only do Step 3.
Example: If the list price of a product is $4500, and there is a 40% discount on it, calculate the price at which the customer can buy the product.
Discount percentage as a decimal = 40/100 = 0.4
Discount = 40% on the list price = 0.4 × 4500 = $1800
Therefore, Selling Price = List Price - Discount ($) = $4500 − $1800 = $2700.
Therefore, after the discount, the customer can buy the product for $2700.
Discount Rate
When the price of an article is reduced and sold it means a discount has been offered. When the price reduced is expressed as a percentage, it is called a discount percentage or the discount rate. The formula to calculate the discount rate is:
- Discount (%) = (List price - Selling Price)/ List Price × 100 [OR]
- Discount (%) = (Discount/List Price) × 100
Discount Rate Calculation
To calculate the discount rate, you must either know both list price and the selling price or know the discount right away.
Example: If the list price of a book is $50, and $10 discount is offered on the book, then the discount rate is calculated as follows.
Discount rate (%) = (Discount/List Price) × 100
List price = $50; discount = $10
Discount (%) = (10/50) × 100
= 100/5
= 20%
Types of Discounts
Discounts are offered while we purchase an item from a seller or a manufacturer. There are three types of discounts:
- Trade Discount: This type of discount is offered by the distributor to the retailer and not to the end customer. A distributor is one who holds huge quantities of a product and offers it at a reduced price to a retailer, who runs a unit or a shop selling the product. This type of discount is offered to sell the product easily.
- Quantity Discount: If a customer buys a product in large numbers, then quantity discounts are offered. This type of discount is offered to tempt the customers to buy a product in large quantities.
- Promotional Discount: Promotional discounts are offered when a new product is to be promoted or if a stock clearance is to be done. This is usually advertised as offering something extra for buying a certain number of items. For example, 'Buy 2 Get 1 Free' is a common example of a promotional discount.
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FAQs on Discounts
What is the Meaning of Discount?
Sometimes, when an item is purchased, there is a reduction in the price of the item. The amount of money that is reduced is called the discount. In other words, discount is the rebate or the amount reduced from the list price of a commodity before selling it.
How to Do Discount Calculation?
Discount is the difference between the marked price (list price) and the selling price of an article. Therefore, the formula used for discount calculation is: Discount = List price - selling price.
What is Discount Formula?
There are two formulas related to discounts.
- Discount = List Price - Selling Price.
- Discount percentage (%) = (Discount/List Price) × 100
What is Discount Rate?
The amount of money that is reduced from the list price of an item is called the discount. The percentage of this discount on the list price is called the discount rate. The formula to calculate the discount rate is: Discount % = (Discount/List Price) × 100. For example, if the list price of an item is $80, and a $10 discount is offered on the item, then the discount percent will be (10/80) × 100, which is equal to 12.5%.
What are the Types of Discounts?
There are three types of discounts - trade discounts, quantity discounts, and promotional discounts.
- Trade discounts are offered by the distributors of a product to a retail shop owner, by reducing the price of the products.
- Quantity discounts are offered to attract customers to purchase large quantities of products.
- Promotional discounts are offered while promoting the sale of a new product or for stock clearance. This is done usually by giving a tag line such as 'Buy 2, Get 1 Free'.
