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Volume discount calculator: when a bulk price pays off
Enter your yearly demand, the order cost, your holding rate and the two price and quantity offers. You get the total yearly cost of each and the price at which they cost the same.
A volume discount pays only if the lower price saves more than the extra holding cost of the bigger order. At the default numbers the bulk offer saves USD 6,340 a year, and it would still win down to a price of USD 19.72.
Written by Procurement VMS Editorial Team · Reviewed by Michael, Procurement Advisor Expert · Updated
Your numbers
The boxes start with an example so you can see how it works. Replace them with your own figures.
Your result
Taking the discount saves USD 6,340 a year after ordering and holding costs. It would still pay down to a price of USD 19.72, so the smallest worthwhile discount is 1.4%.
| Yearly cost at the normal quantity | USD 242,800 |
|---|---|
| Yearly cost at the discount quantity | USD 236,460 |
| Saving from taking the discount | USD 6,340 |
| Break-even price at the larger quantity | USD 19.72 |
| Smallest discount worth taking | 1.4% |
The currency box changes the label only. Enter amounts in the currency you choose.
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- PDF guide with the formula, a worked example and a checklist of what to enter
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The files open with the example numbers from the page. Type yours over the blue cells in the Excel file. The calculator on this page is free to use without a form.
How the volume discount calculator works
The formula
Yearly cost = demand x price + (demand / order quantity) x order cost + (order quantity / 2) x holding rate x price. Compare it for both offers.
A bulk price looks like a saving on the quote, and a cost on the shelf. Larger orders mean fewer orders but more stock to hold, store and finance. The calculator adds all three to give a fair comparison.
The break-even price is the useful output for negotiating. It tells you how little discount is worth taking, and how much better than that the supplier offer really is. Use it to decide whether to ask for more.
The example numbers are illustrative and are not benchmarks. Use your own data for any decision.
How to use it with your own data
- Enter demand, order cost and holding rate. The EOQ calculator explains how to build those figures.
- Enter the normal and the discount quantity with their prices.
- Compare the two yearly costs and note the break-even price.
Mistakes that skew the answer
Counting only the unit price
A 4 percent discount at a quantity six times larger can lose money once the extra holding cost is in.
Ignoring shelf life or obsolescence
If goods spoil or go out of date, raise the holding rate.
Assuming cash is free
Paying for six months of stock up front ties up money. Use your real cost of capital in the holding rate.
What to do with the result
Use the break-even price in your next quote request to ask for the right number. Plan the talk with the negotiation savings calculator, and record the agreed price breaks in the contract along the lines of the contract negotiation guide.
Questions about the volume discount calculator
Is a volume discount always worth taking?
No. It pays only when the lower price saves more than the added cost of holding the larger quantity.
What holding rate should I use?
Use your carrying cost rate. The inventory carrying cost calculator builds one from capital, storage and risk costs.
How does this relate to EOQ?
EOQ finds the cheapest order size at one price. This calculator tests whether a larger size at a lower price beats it.
What if the discount is for annual volume instead?
If the price applies to total yearly purchases, not order size, ordering and holding stay unchanged, and the saving is simply the price difference.