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Thread: Discount calculation

  1. #1
    Senior Member Henrik's Avatar
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    Discount calculation

    Let's say - hypothetically speaking - a sales man tells you: You will get X% off of the list price!. How is that calculated correctly? I am asking this question in the most unbiased possible way by giving you three examples where I am using $100 as the list price. Is the correct method A or is it B?

    10% off: Almost no difference
    Discount methods, 10% discount.PNG

    30% off: Now we are starting to see a difference
    Discount methods, 30% discount.PNG

    99% off: HUGE difference.
    Discount methods, 99% discount.PNG

    So what method is correct? A or B?
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  2. #2
    Matt Drive Stainless's Avatar
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    Quote Originally Posted by Henrik View Post
    Let's say - hypothetically speaking - a sales man tells you: You will get X% off of the list price!. How is that calculated correctly? I am asking this question in the most unbiased possible way by giving you three examples where I am using $100 as the list price. Is the correct method A or is it B?

    10% off: Almost no difference
    Discount methods, 10% discount.PNG

    30% off: Now we are starting to see a difference
    Discount methods, 30% discount.PNG

    99% off: HUGE difference.
    Discount methods, 99% discount.PNG

    So what method is correct? A or B?

    The easy example is 50% off (i.e., half price). No one would dispute that 50% off $100 means you should pay $50. Using Method A to compute 50% off results in $66.67 (100/1.5), so therefore, Method B is more correct because it is more consistent with how an ordinary consumer would expect the calculation would be performed.
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  3. #3
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    I believe method A isn't a valid formula.

    "X% off the list price" is: ListPrice-(ListPrice*X) which is essentially the same as method B. I'm sure there are other variants of the same formula, but method A wouldn't be valid.

    I think method A's formula might be something like: ListPrice/(1+.X) .....looking at it like that shows how/why it doesn't work.
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  4. #4
    Senior Member DMCVegas's Avatar
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    Method B is the correct method, on the first equasion.

    Say you have a 10% discount off of $100. 10% of 100 is 10. In order to calculate a percentage into a decimal, move the decimal point over two spaces to the left. I.e. 10% = .10

    So multiply that percentage by the whole number to get the amount of the discount you receive: .10 * $100 = $10

    Then just subtract the discount amount from the total to see what you pay: $100 - $10 = $90.

    30% would be .30*100 = 30. $100-$30 = $70.00
    99% off would be .99*100 = 99. $100-$99 = $1.00

    The problem though is the massive variable of "list price". List price isn't set in stone, because it's a guide price like MSRP. But in reality it's whatever the actual retail asking price is going to be. Which I can manipulate to get whatever price/profit I want.

    So let's say I have a product. I pay $50 for said product wholesale, and then I choose to mark it up another 50% for a List Price of $100. Not a bad profit margin to double my money, eh? But at that price you as a buyer are not "saving" anything in your mind. So I increase the price to $200, and offer you a 50% discount! You pay me $100 and I still get to make the same profit, but psychologically you think you have gotten a good deal because you "saved" $100 from my *generous* 50% discount off of the price. Did you really save anything from before? No. Do you feel good about this purchase though? Yes. Shucks! Ya got one over on me. Better tell everyone you know to come take advantage of me before I wise-up and change my mind. It gets even worse when I haggle.

    Even so, the majority of profit "lost" on a discount also gets made up elsewhere. Could be on a warranty sale for the product, or even just the accessories. Which is Home Depot's sales model. Sell the power tools cheap to even take a loss on them, but make it all up on the outrageous prices for drill bits, saw blades, and other accessories.
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  5. #5
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    Henrik

    To be more clear, if a part is $100,. and we remove the 21% vat the sum is like this $100,- you split it 121% the sum is $82,64 and not $100,- minus $21,- =$79,-
    $79,- + 21%vat is $95,59
    $82,64 + 21% make $100,-

    I hope that is is more clear for you.

    Regards Ed Uding
    Delorean Europe



    Quote Originally Posted by Henrik View Post
    Let's say - hypothetically speaking - a sales man tells you: You will get X% off of the list price!. How is that calculated correctly? I am asking this question in the most unbiased possible way by giving you three examples where I am using $100 as the list price. Is the correct method A or is it B?

    10% off: Almost no difference
    Discount methods, 10% discount.PNG

    30% off: Now we are starting to see a difference
    Discount methods, 30% discount.PNG

    99% off: HUGE difference.
    Discount methods, 99% discount.PNG

    So what method is correct? A or B?

  6. #6
    Senior Member Henrik's Avatar
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    Ed,
    I will respond to you privately via e-mail.

    Meanwhile, please take two minutes of your time and look at the first posting in this thread and then post your answer: Do you agree with calculation Method A or do you agree with calculation Method B?

    If you can't spare two minutes, at least look at the third example.

    Do you agree with A or B?

    Henrik
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  7. #7
    '82 T3 Turbo FABombjoy's Avatar
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    Discounting by percentage is a different calc -vs- removing a pre-applied discount.

    Adding a Discount:
    $100 discounted 21% = $79
    $100 - (100 * .21) = $79

    Removing a discount
    $121 removing 21% = $100
    $121 is the original price plus an additional 21%
    $121 = 121% of original price

    $121 / 1.21 = $100

    Solution = Set up store software to enable showing price exclusive of VAT
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  8. #8
    LS1 DMC Nicholas R's Avatar
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    This isn't a cut and dry question without knowing the context. It depends on exactly what the circumstance is. If something is $100 and you say the price is 30% off, then of course its just .7*100=$70. This is answer B.

    If this is related to the the removal of a tax though (Eds website for instance), it is NOT simply 30% off of the $100, because the price is listed including the 30% tax. For this situation, it is answer A.

    The original tax of 30% is calculated based on the original price, (not the price after tax of $100), which when added together equals $100. If the price is $100 after a 30% tax has been applied, the original price was $76.9 and a 30% tax on it is .3*76.92=$23.08. When added together, $76.92+$23.08=$100. If I now said, you wont get charged the 30% tax, you dont simply get 30% off of the $100 price tag because that would mean the new price was $70. Obviously, you simply get charged the tax free price of $76.92. To calculate this, its like Ed said, you divide $100/1.3=$76.92. This gives you the price that the item cost, before a 30% tax was assessed.

    If you say that the tax on an item is 100% then you're essentially saying that the tax is the same as the price. If the price is $100, the tax is also $100, meaning you're going to end up paying $200. But if you say, eh, I wont charge you the 100% tax, you dont now get if for free, you simply dont have to pay that second $100. Now the price is back down to the original $100. (This is essentially the third example)
    Last edited by Nicholas R; 10-20-2016 at 12:03 AM.

  9. #9
    Admn Retired Ron's Avatar
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    Quote Originally Posted by ed uding View Post
    ...
    $82,64 + 21% make $100,-
    Hey, you're cheating me a penny on the round off!
    $82.64 * 1.21 = $99.9944

  10. #10
    Senior Member Henrik's Avatar
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    Time to eat crow and an apology

    Quote Originally Posted by Nicholas R View Post
    This isn't a cut and dry question without knowing the context...
    I agree, Nick. The context is what matters. I boil it down to this:

    • “List price less VAT”: This is what Ed should have stated. Method A applies.
    • “21% off the list price”: This is what Ed stated to me. Method B applies.

    In the strictest of definitions and without putting this into context I stuck to the latter, Method B, because that was the agreement. After all, price was an important criteria. However…. of course I realize that all Ed is trying to accomplish is to deduct the VAT portion, i.e. making Method A the correct method in this case. Maybe a mean streak crawled up my butt last week, not sure.

    Ed,
    If you’re reading this: My apologies!
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