Volume Discounts: Set Tiers That Preserve Order Contribution

This guide is for a supplier building a repeatable quantity price list. Start with actual order-handling records: number of picks, cartons, setup time and deliveries. Check what is left after serving the larger order.

Name the discount method before calculating it

An all-units tier applies the new price to every unit once an order qualifies. An incremental tier applies it only to units above the threshold. A phrase such as '100 or more: $18' leaves room for confusion if the written offer doesn't explain which method is intended.

For this example, units 1–99 cost the customer $20 each. At 100 units, the proposed discounted price is $18. Product cost is $12 per unit and each order has $40 of handling cost. No cost savings at the threshold have yet been demonstrated.

Assumptions: Fictional Australian-dollar management-costing example. Amounts exclude GST that is assumed recoverable; any non-recoverable tax is already included in costs. These assumptions do not establish your GST entitlement. Contribution is before unallocated overheads and income tax.

Order quantity	All-units revenue	All-units contribution	Incremental revenue	Incremental contribution
99	$1,980	$752	$1,980	$752
100	$1,800	$560	$1,998	$758
120	$2,160	$680	$2,358	$878
200	$3,600	$1,160	$3,798	$1,358

Original ASBG worked example. All businesses, amounts and scenarios are fictional. The table contains the same figures as the visual.

At 100 units, all-units revenue is 100 × $18 = $1,800. Costs are $1,200 plus $40, leaving $560. That is $192 less than the 99-unit order. Under incremental pricing, revenue is 99 × $20 + 1 × $18 = $1,998, leaving $758.

The graph joins the tested quantities for readability; it isn't a prediction for every quantity in between. The table is the calculation record. Extend it to every boundary in your actual price list, including carton multiples and mixed-product orders.

Find the saving that can fund a tier

Suppose a full-carton order really reduces handling from $40 to $20 at 100 units. That creates a $20 saving, not a $200 saving. An all-units price of $19.80 for 100 units gives $1,980 revenue less $1,200 product cost and $20 handling: $760 contribution. It clears the $752 earned on 99 units by $8.

This doesn't establish $19.80 as the right market price. It shows the difference between funding a reduction from an evidenced saving and choosing a round discount without costing it. Check supplier minimums, carton packing and carrier rules before treating a saving as certain.

Also check cash and stock. A bigger order can require an early supplier payment or leave awkward leftover quantities. Those constraints may make a seemingly acceptable contribution impractical.

Test the awkward orders

Run the smallest qualifying order, the largest non-qualifying order and a mixed order. Decide whether quantities are combined across products, deliveries or purchase orders. Check how returns and partial cancellations affect the tier under the agreement; don't assume you can retrospectively reprice an order.

Record whether the customer must take one delivery and whether quoted freight changes above a weight threshold. If a large order creates a second pallet charge, the cost curve may step upwards at the same point as the price steps downwards.

The broader business.gov.au pricing guide helps place a cost-based tier alongside demand. For customer wording, check the ACCC's price-display guidance and have unusual contract conditions reviewed before use. The internal comparison above doesn't decide what an existing agreement permits.

Where to get help

Use minimum-order analysis for small baskets and wholesale channel costing when a retailer is buying. Pricing strategy and the pricing and profit hub cover the foundations.