Businesses attract customers by giving discounts. Individual items go on sale by having a discount percentage added to the original price. So when the customer buys the product, the cost is lower than the actual price of the product.
But, the wholesale and resale markets are markedly different from each other. The buying price will be lower than the actual price of the product. But instead of applying a discount on one quantity or a few products, wholesale discounts deal with large quantities of goods. This wholesale discount percentage guide will help you understand what a wholesale discount is, what are the best tips to implement it, and show you the benefits and drawbacks of discounts for your wholesale business.
Understanding Wholesale Discount At Its Core
Let’s visualize this via an example. Imagine a wholesale bookstore that sells popular novels to other bookstores around the area. One of their customers, a retail bookstore, wishes to purchase 100 books that usually cost around $10 each. But, the wholesale bookstore has a discount for any quantity of purchase over 70 books.
For any purchase above 70 book quantities, the wholesaler offers a 10% discount on the wholesale price. So the retail bookstore has to pay $900 for the 100 books instead of the wholesale price of $1,000. The retail bookstore saves $100 and the wholesaler gains a new customer.
Such a discount percentage based on quantity is one of many types of discount strategies that wholesalers can use (we will look at the types in the next section). Such a pricing strategy has its distinct advantages and helps catering to different customer segments for the wholesaler.
4 Types Of Wholesale Discount Percentage
Different types of wholesale discount percentages give your wholesale business different advantages. So let’s discuss some of the wholesale discount types:
1. Volume Discounts
Probably the most popular and typical wholesale discount type out there. The discount is based on the volume of the purchase. So essentially, the more a customer buys, the higher the wholesale discount will be. Take it as a buy more, save more strategy that attracts customers to do business with you. This type of discount encourages retailers to purchase more stock, which can help you move inventory quickly and improve cash flow.
For example, a wholesaler might offer a 5% discount for orders of 50 units, a 10% discount for 100 units, and a 20% discount for 200 units. This tiered approach not only incentivizes larger purchases but also helps in planning production and managing inventory efficiently. Volume discounts are particularly effective in industries where high turnover and large order sizes are common, such as in consumer goods and electronics.
2. Trade Discounts
Where volume discounts are all about the quantity, trade discounts Trade is offered to specific groups of buyers or businesses within the same industry. So rather than being focused on the quantity, they are largely based on the vendor relationship and the nature of the transaction. Trade discounts help build long-term partnerships and loyalty among business customers.
For instance, a wholesaler might offer a flat 10% discount to all registered retailers. This type of discount simplifies the pricing structure and makes it easier for business customers to plan their purchases. In return, non-registered dealers or buyers might have only a 5% discount instead.
By offering trade discounts, you can create a competitive advantage and foster a sense of loyalty and partnership with your key customers, ensuring a steady stream of orders. It also taps into the personalization of discounts which can be applied in a variety of ways to help make the discounts make sense for both businesses.
3. Cash Discounts
Payments in wholesaling might take months on end to be paid in full so the velocity of money is very slow. Large payments take time to process but this in turn can hurt a wholesale business in the short run. The turnover of revenue is much slower and your wholesale business suffers from not getting timely payments to procure more products for other customers.
So you might think of cash discounts as discounts offered when customers pay in cash. But it is a bit different from that. Cash discounts are incentives for customers to pay their invoices promptly, focusing more on time rather than on anything else. This type of discount is typically offered as a percentage of the total invoice if payment is made within a specified time frame. Your wholesale revenues are more prompt and you have more readily available working capital to advance your product procurement.
For example, a wholesaler might offer a 2% discount if the invoice is paid within 10 days, instead of the usual 30 days. This sort of payment agreement encourages customers to pay early, providing the wholesaler with quicker access to cash. Cash discounts can be particularly beneficial for small and medium-sized businesses that need to maintain a healthy cash flow to support their operations.
4. Seasonal Discounts
As the season changes, the market changes with it as well. A winter coat is not usually bought during the summer season so retailers won’t pay to procure large quantities of winter coats. So to help facilitate more sales for coats, a wholesale business can offer the coats at a wholesale discount.
And it is not just limited to seasonal changes either. Holidays are included in this seasonal wholesale discount as well. This is especially the case for the Black Friday and Cyber Monday sales period, where holiday marketing is used to enhance sales for wholesales.
For instance, a wholesaler might offer a 20% discount on summer apparel at the end of summer. This helps clear out inventory to make room for new stock. So seasonal discounts can be used for both inventory clearance strategies and also help promote sales for in-trend items.
6 Wholesale Discount Percentage Guide Tips – How You Can Offer The Best Discounts For Your Customers
While you can randomly slap on a discount on products, there is a method to the madness to get the best out of discounts for your customers. Here are tips on how you can offer discounts for customers
Tip#1 Understanding Your COGS
The first two things that you need to know with absolute certainty are how your cost of goods sold (COGS) and how it will affect the market you are in. The COGS takes into account all the costs like rent, storage cost, and inventory management for your goods wholesale. When you have a deep understanding of your inventory, then you can make sense of how much discount to apply without hurting your revenue.
Tip#2 Market Analysis For Discount Strategies
The same goes for market analysis and COGS is connected to it. Your discount will depend largely on the typical wholesale discount on the market. Other businesses will try to reduce their costs as much as possible, so the highest discount will be more attractive.
So when you combine your COGS and analyze the market for what other wholesale businesses are offering, you can tune your discount to make your products a more viable and attractive proposition for customers. Analyze market trends to identify peak sales periods and slow seasons to use the best wholesale discount strategy possible for your business.
Tip#3 Segment Your Customers
Not all customers are the same, and neither should your discount offers be. Personalizing your discounts for different customer segments is how you can offer a better discount system for your customers. It allows you to attract smaller businesses who need the help to get their businesses started while also providing high-volume buyers better rates than those purchasing smaller quantities. Be sure to identify future customer segment trends so you can be on top for every customer type possible.
Tip#4 Create Tiered Discount Structures
Pricing tiers are a great way to incentivize customers to buy large quantities. Think of making it attractive enough that customers are able to climb the pricing ladders so that they get the best possible offers for the price.
For example, offer a 5% discount for orders of 50 units, a 10% discount for 100 units, and a 15% discount for 200 units or more. You can see how it creates a ladder for the next best discount option. It attracts a variety of customers for your business, essentially helping you clear your inventory as fast as possible while also catering to many different customer types as well.
Tip#5 Market Your Discount Strategies
If no one can see your discounts, then coming up with all the different discount strategies will be rendered meaningless. So you need to make sure that your customers know that you have a discount offer going on for your business. This is where you need to market your discount to the customers to enhance customer retention for your business.
Use creative marketing techniques to highlight your discounts. If you are in e-commerce, then having a header section/banner that advertises your new sales or discount product increases visibility. You should also utilize other successful marketing strategies like email marketing and social media promotions where you can highlight the value proposition to customers, so they are more likely to come back to your business as repeat customers.
Step 6: Monitor and Adjust Regularly
Just because you have set your discount, your job is not done. You need to ensure that the discount is effective by monitoring and adjusting it regularly. For this, you need to track sales data, and customer feedback, and analyze market changes to know if your discounts are working or not.
This is very important because you want your customers to be happy with the products that you are offering. While monitoring, you need to ask: are they driving the desired increase in sales volume? Are customers responding positively? If the answer is no, then you should identify where you can improve your discount strategies, so the value proposition of the discount is properly conveyed to the customers.
5 Pros and 5 Cons Of Offering A Wholesale Discount
Offering wholesale discounts can be a powerful tool for businesses, but it’s important to understand both the benefits and potential drawbacks. Here’s a detailed look at the pros and cons to help you make an informed decision.
5 Pros of Offering a Wholesale Discount
1. Increased Sales Volume
Discounts are a great way for your business to clear out stocks so you have more space to stock newer products. Alongside, here are some other pros of increased sales volume
- Encouraging large-quantity purchases
- More working capital
- Clearing out inventory faster
2. Better Inventory Management
As a wholesaler, inventory management is everything. As a wholesale business, keeping the products stocked and cleared out as fast as possible are things you want to do as efficiently as possible, and wholesale discounts make it possible. Here are some other inventory management benefits from typical wholesale discounts.
- Help reduce excess inventory
- Minimize storage costs
- Ensure products are sold before shelf life expiry
3. Stronger Customer Relationships
We talked about discounts being a cornerstone for B2B customer loyalty. This is because wholesale discounts allow you to have repeat customers. They bring in the most money for your business so keeping them happy is important. So you can make tailored discounts for these customers to help make a stronger relationship between your business and theirs.
- Loyal customer base
- Better word-of-mouth
- Steady revenue stream
- Reduced marketing efforts and costs.
4. Competitive Advantage
Discounts provide a competitive advantage for your business. Customers are always on the lookout for the best deals and you do that with wholesale discounts. Here are some other competitive advantages for your business:
- Set your business apart
- Attract new customers
- Play on a tiger margin than competitors
- Create more effective sales incentives
5. Improved Cash Flow
Improved cash flow can help your business run smoother, especially when you are a small wholesale business.
- Cash discounts encourage early payments
- Reducing the risk of bad debts
- Steady cash flow to operate smoothly.
5 Cons of Offering a Wholesale Discount
1. Reduced Profit Margins
While discounts can boost sales volume, they also reduce the profit margin per unit. This can be problematic if the increased volume doesn’t compensate for the lower margins. For example, a product you sold at $5 per unit is now being sold at $4 per unit for the first 1000 units. You are effectively losing out on a $1000 revenue, reducing your overall profit margins.
2. Customer Dependency on Discounts
Regular discounts can lead customers to expect them as a standard, making it difficult to sell products at full price. This can undermine pricing strategies and affect long-term profitability as customers get used to discounts and only do business with you because of the discounts you offer. This can lead to disrupted sales cycles and cause unexpected revenue fluctuations.
3. Impact on Brand Perception
Wholesale discounts are not always seen as a positive from customers. They might think a product is on discount because it is poorly sold, which they can infer as having lower product quality particularly if the discounts are substantial or ongoing. This can negatively affect brand image and customer perceptions.
4. Complexity in Management
As much as discounts are great for your business, it can be quite a logistical challenge. Imagine having to manage multiple discount structures (volume, trade, cash, seasonal). Recording sales for it could be complex and time-consuming. It requires careful planning, monitoring, and adjustment to ensure effectiveness.
5. Potential for Financial Strain
With reduced profit margins you might also run into financial constraints because of frequent discounts. This is particularly difficult for smaller businesses that rely on discounts to drive their sales. A small wholesaler might struggle to maintain operations if discounts cut too deeply into profits, leading to potential cash flow issues.
How You Can Best Utilize Wholesale Discounts With A Bulk Order App On Shopify
Wholesale discount strategies are great and all, but how does a business implement it effectively in e-commerce? On Shopify, store owners can utilize discounts to drive sales with the help of third-party apps. However, a bulk order app can help you implement your discounts in a way that shows the value proposition of the discount itself. Here is an example of such an app on a Shopify store:
MultiVariants Bulk Order App Using Product Variant Options For Wholesale Discount Price Strategy
You can see this store is using the volume wholesale discount strategy to help sell more products. The different quantity boxes are variants with different prices where the more a box set has, the lower the price for each unit of product. This might not seem like a discount but still conveys the discount aspect to customers where they might be inclined to buy more at a lower cost per unit.
Next, you will notice how all the variants of the box set are showcased in one product page instead of dedicating different product pages for each variant. The customers get to select the quantity they want and then add them to the cart all at once with a click of the button.
But the best feature of the app is the maximum order quantity. The box sets are defined above but customers might choose more than the allocated quantity. To help ease the customer experience, the app has a rule set so that customers order the exact amount for each product box. This helps make the shopping experience as streamlined as possible and removes frustration from orders, and the store owners get to make hassle-free order fulfillment for their customers. So this app not only allows your store to have discounts to showcase value propositions but also ensures the customers have an unforgettable experience shopping at your Shopify store.
Bottom Line
The wholesale discount percentage guide is here to show you how you can implement a typical wholesale discount strategy with tips to help. It also shows you the pros and cons so you understand where and where not to implement your discounts for your store. Hopefully, this guide helps you understand wholesale discounts a bit better so you can implement them in your store more effectively.
