how a quantity discount works
retailers often get better deals if they order more of the same item for example the cost per unit for t shirts might be 7 50 per unit if fewer than 48 pieces are ordered 7 25 per unit if 49 72 pieces are ordered or 7 per unit if 73 or more pieces are ordered depending on the quantity discount all pieces ordered must be delivered and paid for by a certain date alternatively the purchases and payments can be spread out over a specified period of time by selling in larger quantities the seller can increase their revenues per transaction rpt the vendor can also scale quantity discounts in steps with lower per unit prices at higher quantities to encourage bulk buyers for instance a coat maker that employs steps in its pricing strategy could offer coats at 20 each five for 90 and 10 for 160 advantages and disadvantages of quantity discountsquantity discounting can be fruitful the principal benefit is to increase total sales volume in order to realize economies of scale quantity discounts boost units per transaction upt the resulting increased sales volume can lead to economies of scale in the form of purchasing goods and materials in bulk at a quantity discount from suppliers and the ability to combine incidental per order costs such as shipping and packaging into one sale these economies of scale have the potential to reduce per unit costs to the seller quantity discounting can also come in handy when a seller is keen to lower its inventory taking such action can be particularly useful when the product in question risks going out of fashion or becoming obsolete due to a technological breakthrough there are several caveats to this strategy though the main drawback of quantity discounts is that the discount squeezes profit per unit also known as the marginal profit unless sufficient economies of scale are realized to at least offset the discount offer so if the per unit cost for the coat company is 10 the company makes a 10 profit on every single 20 sale however if the company offers quantity discounts of 2 per coat for orders of five coats and 4 per coat for orders of 10 coats then it makes only 8 in marginal profit on an order of five and 6 in marginal profit on an order of 10 that would of course change if the coat company is able to save money by for example buying in bulk from its suppliers quantity discount vs linear pricing