Volume Pricing Structures: What They Are and How to Use Them

By Indeed Editorial Team

Published May 9, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Determining pricing is an important part of sales. Multi-buy pricing, which offers discounts for customers who purchase larger quantities of products, is one pricing structure a business might use. If you work in sales or marketing, learning about this type of pricing can help you to determine what type of pricing structure might be most beneficial for the business you work for. In this article, we define volume or multi-buy pricing and the different types of volume pricing structures, discuss their benefits and describe how to use this pricing structure to increase sales.

What is volume pricing?

Volume pricing is the process of providing discounts for customers who buy products or services in larger volumes or quantities. This means that when a customer purchases a larger volume of product, the company offers a lower price per unit. Volume discounts offer different benefits to the company and the consumer. For the company, this pricing allows them to sell more inventory and increase the number and volume of sales. For the customer, multi-buy pricing provides an incentive to order more products by rewarding them for doing so.

What are the different structures of pricing?

There are several different ways that companies may choose to establish structures for pricing by volume. These include:

Tiers

In a tiered structure, the company creates different bands or tiers. Each tier provides a different discount. This means that the customer receives a higher discount when they buy more product. For example, if the customer purchases a higher number of products, then they may receive a larger discount from a higher tier. This type of pricing structure may be advantageous because customers can easily understand it, and it offers a simple structure that is easy for businesses to manage. An example of a tiered pricing structure might be:

  • Tier 1: If a customer places a volume order of between 100 and 150 units, then they receive a 10% discount on their order.

  • Tier 2: If the customer chooses to increase the size of their order to between 151 and 250 units, then they receive a higher discount of 15%.

  • Tier 3: If the customer opts to increase their order further by purchasing between 251 and 350 units, then their discount rises to 20%.

  • Tier 4: If the customer increases their order to above 350 units, then they receive the maximum discount of 25%.

Thresholds

When a company chooses to use a threshold pricing structure, a discount doesn't apply until a customer purchases a certain volume or threshold of goods or services. This means that the discount applies only to the purchased goods or services above the threshold. For example, a company may choose to offer a discount of 10% to products purchased over a threshold of 100 units. If a customer chose to purchase 200 units, then they would pay the regular price for the first 100 units and receive the discount of 10% off the remaining 100 units.

Packages

When a company chooses to offer packages, they offer groups of products for a certain discount. For example, a company may offer a certain price for groups of 10, 25, or 50 products. This would mean that if a customer chose to purchase 30 units of a product, then they would receive the package discount for the package of 25 units and pay the individual price for the remaining five units. Package pricing is similar to tiered pricing because it encourages customers to purchase more units, but the discount does not necessarily apply to every product in the order.

Benefits of volume pricing

Volume discounts may offer several benefits to businesses that choose to use this pricing structure. Potential benefits include:

Increasing sale volume

Because this pricing structure means that customers who purchase more units receive a discount, this can incentivize customers to purchase more units per order, increasing the sales volume. It is more appealing to the customer to purchase goods or services that are at a lower cost per unit. This may be especially true for customers in industries who regularly use and repurchase products, such as construction or manufacturing.

Attracting new customers

Multi-buy pricing may help to attract new customers by providing them with an incentive to try the company's products. If a customer is unsure about purchasing products from a company, then multi-buy pricing may offer the discount that encourages them to decide to purchase. Companies may also choose to offer special structures for first-time buyers to further capitalize on this.

Appealing to different types of customers

Depending on the business, customers may have different needs. For example, customers of smaller businesses typically require lower numbers of units per order. Other customers may have higher sales or manufacturing demands and may benefit from ordering larger quantities of products. Volume pricing allows a company to offer pricing structures and discounts to both types of customers.

Differentiating the business

Differentiation refers to setting a business apart from other similar businesses in the industry. Volume discounts may help a business do this as customers may begin to recognize the business's unique pricing structure, which could encourage them to purchase products from this supplier rather than another. A business might also consider introducing special pricing structures for loyal customers to help further differentiate itself.

Related: What Is a Differentiation Strategy? (With Benefits and Tips)

How to use volume discount pricing

If you work in sales or marketing, you may implement volume discounts by following the steps below:

1. Analyze data

The first step in introducing volume pricing to a business is to analyze data to determine how to best fit this pricing structure into your sales plan. This involves data about current sales and information about competitors in the industry. Look at the sales data from the last few years, noting profit margins and unit volumes for each sale. When researching competitors in the industry, examine their pricing structures so that you can develop a unique pricing structure for the business you work for. This step provides information that could help determine how to use volume discounts most effectively.

2. Understand the customers

To determine your pricing structure, it's important to understand the customers so that you can offer pricing structures that suit them. For example, if current customers tend to make smaller orders, then you might want to offer a discount on slightly larger orders to encourage them to make larger volume orders. If customers currently place large orders, then offering discounts on these orders may only decrease the profit margin. Instead, you could consider offering discounts on a higher threshold of items or offer package options to encourage customers to purchase a larger variety of products.

3. Determine which products or services to discount

The next step is to decide which products or services to discount because it may not be profitable to offer discounts on everything. Offering prices by volume may be most successful on products or services that typically sell regularly, as these products are in high demand, and this new pricing structure might encourage customers to buy larger volumes of these items. Another option is to offer volume discounts on items that are not selling as well. Volume discounts may encourage more of these items to sell. Assessing current sales data may help determine which products or services to discount.

4. Calculate maximum allowable discounts

After determining which products or services to apply discounts to, determine the maximum discount that the business can afford. You can do this by examining a business's past revenue, net income, and gross income to estimate how much it may earn in the upcoming year. Next, calculate the maximum discounts that the business may offer while remaining profitable. Another factor to consider when calculating maximum allowable discounts is that introducing new pricing structures may increase sales overall.

Related: How to Calculate Annual Gross Income (With Examples)

5. Determine pricing structure

Use the data gathered so far to decide which pricing structure would work best for the company you work for. If products have high profit margins but variable order sizes, you might benefit from applying a tiered approach because it offers better discounts to customers who increase their order, regardless of their initial order size. This encourages customers to purchase more and doesn't affect profits substantially since there were already high profit margins. Consider also offering different pricing structures for different products. For example, offering larger discounts on items that sell less well might encourage customers to buy them.

Related: Important KPI Sales Metrics (With Definitions and Examples)

6. Monitor sales and adjust pricing structure accordingly

Once you have established your pricing structure, continually monitor sales and revenue to ensure that the pricing structure is beneficial for the company's growth. Examine sales data to determine if the new pricing structure is contributing to increased sales volumes per order and wider profit margins. If it's not, examine the data to determine where to make changes. For example, if sales volumes have increased but profit margins have not, then the discounts offered may be too high.

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