Discount is a kind of reduction or deduction in the cost price of a product. It is mostly used in consumer transactions, where people are provided with discounts on various products. The discount rate is given in percentage.
The formula to calculate the discount is:
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
- The list price or marked price of an article is the price set by the seller or the manufacturer.
- The selling price is the exact price at which any commodity is sold after any deduction or discounts in the list price.
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.