What is Chain Discount? These are several discounts which a business offers on its original list price. Chain Discount calculator is beneficial in inspiring customers to take positive actions such as to make a capacity purchase.
Methods to Chain Discount
There are two methods that may be used to compute the net cost price:
- Determine a single equivalent discount and then progress to calculate the net cost price as demonstrated earlier. This method is also useful for companies that wish to relate changing discount rules of challenging companies.
To calculate a corresponding discount, multiply the balances of each of the discounts (100 percent – discount) collected and deduct the result from 100 percent. For example, the single discount equivalent of 10 percent and 20 percent and 20 percent is computed as:
Step 1: (100% – 10%) X (100%-20%)
Step 2: 0.90 X 0.80 = 0.72
Step 3: Equivalent discount = 100% – 72% = 28%
- The net cost price can be computed directly by multiplying the list price by the accompaniment of each of the discount in the sequence. It does not make any difference in what order the discounts are set.
Assume the information:
(100% – 25%) X (100% – 20%)
(0.75) X (0.80) = 0.60
$750 X 0.60 = $450
Chain Discount Calculator
The calculator works out the net price of the product after subtracting the discounts and calculates the single equivalent discount rate (SED, it depending on the number of trade discounts) for the chain discount. To use the calculator, enter the following details as follows which are given below:
Enter the unique list price of the product.
Enter up to discount percentages in the required column. For example, if the business offers 20% trade discount on a product and then a further 10% for purchasing in wholesale amounts, then enter 20% in one column and 10% in another column, and leave the other discount percentages blank or enter 0%.
For each percentage provided, the calculator works out the discount is given and the net price after that chain discount. It also delivers a summary showing the list price, total discount and net price to be paid.
Net Discount Formula
Since the chain discounts are entered in series, the net price can be calculated using the chain discount formula. The formula can be stated as:
Net price = List price x (1-Discount 1) x (1-Discount 2)
At the end, the single equivalent discount rate (SED) is calculated. The single equivalent discount denotes the discount rate which when applied to the original price outcomes in the same net price and total discount as spread over the chain of discounts. The single equivalent rate can be determined using the SED formula which is given below:
SED = (List price – Net price) / List price
For example, the business offers 25/10/5/2 chain discounts on a product with a list price of 600, and the SED is calculated using the formula as follows:
SED = 37.2%