Customer and volume price lists without giving away margin
How to set a base price, quantity breaks and special prices for contractors without discounts eating your profit, with formulas, a worked example and the indicators to review every month.
A contractor walks up to the counter and asks for a “job-site price” on 300 bags of cement, payable in 60 days. The salesperson wants to close, remembers that another customer got 10 % off and repeats it. The sale goes through, the truck is loaded and nobody does the math. At month-end revenue is up, but profit isn’t: that 10 % ate almost all the margin on each bag, and the money arrives two months later.
The problem isn’t giving discounts. It’s giving them without a rule that says how far you can go. This guide helps you build that rule, even if you keep it in a spreadsheet.
Start with the base price
Every discount is calculated on a base price, and the base price is calculated on the replacement cost (what it would cost you to buy the product again today), not on what you paid six months ago. For materials like cement, rebar or pipe, cost changes often; if your base price rests on an old cost, any discount starts from a base that has already lost margin.
Also define a floor margin per product family: the minimum margin below which nothing is sold without authorization. It’s the piece most hardware stores lack and the one that protects them most.
Margin and markup are not the same
They are two ways of measuring the same profit, and mixing them up is the most expensive mistake in this guide.
- Markup = (price − cost) / cost
- Margin = (price − cost) / price
- To reach a target margin: price = cost / (1 − margin)
| Target margin | Equivalent markup |
|---|---|
| 10 % | 11.1 % |
| 20 % | 25.0 % |
| 25 % | 33.3 % |
| 30 % | 42.9 % |
Suppose a bag costs you Bs 50 and you sell it for Bs 62.50. Markup is 25 % and margin is 20 %. If someone thinks “I added 25 % on top, so I can give up to 20 % off”, they end up selling at Bs 50: zero margin.
Quantity breaks: how much each tier can take
The maximum discount you can give without dropping below the floor margin comes from this formula:
Maximum discount = 1 − (1 − current margin) / (1 − floor margin)
With a current margin of 20 % and a floor of 8 %: 1 − 0.80 / 0.92 = 13 %. That’s the absolute ceiling; your breaks should sit well below it, because special prices and credit costs come on top.
With the bag costing Bs 50 and a base price of Bs 62.50, a reasonable set of breaks could be:
| Tier (bags) | Discount | Price | Margin per bag | Margin % |
|---|---|---|---|---|
| 1 to 49 | 0 % | Bs 62.50 | Bs 12.50 | 20.0 % |
| 50 to 199 | 3 % | Bs 60.63 | Bs 10.63 | 17.5 % |
| 200 to 499 | 6 % | Bs 58.75 | Bs 8.75 | 14.9 % |
| 500 or more | 9 % | Bs 56.88 | Bs 6.88 | 12.1 % |
Notice that a 9 % discount doesn’t cost 9 % of margin: margin drops from 20 % to 12.1 %, and profit per bag falls 45 %. That’s why volume has to earn it: lower cost to serve per order, faster turnover, or a purchase you wouldn’t otherwise get.
Customer-specific prices
Some customers deserve their own price: the contractor who buys every month, the builder who pays on time. To decide with judgment, look at three things:
- Actual annual volume, not the promised one. Check what you invoiced over the last 12 months.
- Payment terms. Credit has a cost: credit cost ≈ price × monthly financing rate × months of term.
- Payment history. A customer who pays at 90 days when you gave 30 isn’t worth the same as a punctual one.
A special price should have an owner (who approved it), a reason and an expiry date.
Validity: every special price expires
Give every list and every special price a from date and a to date. When replacement cost goes up, review the lists that expire soon first, and don’t renew them automatically. A price agreed a year ago on that year’s cost may be below your floor margin today without anyone noticing.
Rule priority: which price wins
When the same product has a customer price, a promotion, a list with breaks and a base price, the system (or the salesperson) needs to know which applies. A clear rule is:
- Customer-specific price
- Active promotion
- Price list, with its quantity break
- Base price
The key is that rules don’t stack: only one applies. If the contractor with a special price also gets the volume break and this month’s promotion, you no longer have a pricing policy; you have a pile of discounts.
Worked example
Suppose the contractor from the opening buys 300 bags on 60-day terms and your financing cost is 1 % a month.
- Tier 200 to 499: Bs 58.75 per bag. Sale: 300 × 58.75 = Bs 17,625.
- Gross margin: 300 × 8.75 = Bs 2,625.
- Credit cost: 17,625 × 1 % × 2 months = Bs 352.50.
- Margin after credit: Bs 2,272.50, that is 12.9 %.
Now the salesperson adds 5 % “to close”: the price drops to Bs 55.81 and the sale to Bs 16,743.75. Gross margin is Bs 1,743.75; minus Bs 334.88 of credit, Bs 1,408.87 is left: 8.4 %, barely above the floor. That 5 % cost Bs 864 of profit. To win it back selling at the counter at Bs 12.50 margin per bag, you’d need about 69 more bags.
How to review the impact on margin
Review these indicators every month, by customer and by salesperson:
| Indicator | How it’s calculated | What it tells you |
|---|---|---|
| Gross margin per customer | (sales − cost) / sales | Who leaves you profit and who only volume |
| Effective discount | 1 − (invoiced sales / sales at base price) | How much is really being given away |
| Price leakage | Σ (base price − invoiced price) × quantity | What was given away in Bs, easy to compare with profit |
| Sales below floor | Amount sold below floor margin / total sales | Whether the rule is followed or skipped |
If the effective discount rises month after month without volume rising, the breaks aren’t buying sales: they’re giving away margin.
Common mistakes
- Calculating discounts on a base price built from an old cost.
- Confusing markup with margin when setting the discount ceiling.
- Stacking special price, volume break and promotion on the same line.
- Special lists with no expiry date.
- Giving the same price on credit as for cash.
- Measuring salespeople only on revenue, without looking at the margin they leave.
Checklist
- Base price calculated on replacement cost.
- Floor margin defined per product family.
- Quantity breaks below the maximum discount.
- Every special price with an approver, a reason and a validity period.
- A single priority rule, with no stacked discounts.
- Margin indicators reviewed every month by customer and salesperson.
Taking it into a system
If you have few lists, a well-organized spreadsheet is enough. As customers and products grow, an ERP like MKA can apply the priority between customer price, promotion, list and base price on its own, with quantity breaks and validity dates, when building quotes and orders (see the solution for hardware stores).