Know the Fundamental of Volume Pricing for eCommerce

In volume pricing, the price per unit drops as the purchase quantity rises. Many companies, both in the wholesale and retail sectors, employ this tactic to increase product sales. Merchants can boost their sales volume, and customers can save money buying in bulk.

Consider a consumer who needs to buy screws as an example. The price per screw might be 10¢ if they buy a 100-pack. However, the company may reduce the cost per screw to 8¢ if consumers opt to purchase 1,000 screws simultaneously. When customers buy more, they get a better price.

Research shows that this price strategy can work because discounts boost sales. The data from Convince and Convert shows that 70% of consumers buy to solve problems, and 30% buy something to get the offer.

“Volume pricing,” “quantity pricing,” “quantity discounting,” and “volume pricing” are all interchangeable names for the same pricing concept. To incentivize clients to make more significant purchases, they all explain the idea of offering a discounted per-unit pricing depending on the number purchased.

In this article, we will discuss how volume pricing works for eCommerce.

How Does a Volume Discount Work?

When a company or individual offers a steep discount to buy a considerable amount of a product all at once, they engage in volume discounting. A merchant may offer a discount for numerous units or a big enough quantity bought all at once as an incentive to attract customers.

Sales agreements, including bulk discounts prevalent in wholesale marketplaces, are win-win for all parties involved. In the same way that they help businesses save money on stock purchases and inventory management, they also let manufacturers simultaneously sell more units to larger customers, reducing the cost of storing inventory.

While both quantity discounts and volume discounts are comparable, they are distinct. Buying a lot of a product is only sometimes required to qualify for a quantity discount. A “Buy One, Get One Free” offer is an example of a quantity discount in the retail sector.

Volume Discounts: How Do They Work?

Here are a few examples of how a volume discount can be structured:

Way 1 – The Process of Creating Distinct Layers

Tiering is the name given to the most popular method of volume discounting. This means that a certain percentage off may be available for a certain number of units in that category. If you buy more units, the discount percentage for each tier will be higher.

As an illustration, the 50-100 unit tier receives a 5% discount when purchasing Product X in quantity. A more significant discount, say 10%, is offered when the tier switches to 101-150 units sold.

Way 2 – Establishing a Limit

A lower price rate or a more significant discount rate is only applied if a predetermined threshold is reached in this second technique of delivering a volume discount. For certain products, for instance, a minimum purchase of 500 units may be required to qualify for a bulk discount.

This implies you can only use the discounted rate on the 501st product you buy. For the first 500 items, the customer must still pay the total price.

Customizing Pricing For Bundles Of Units

The last way to structure volume discounts is to give discounted prices on bundles of units. Take Good X as an example. For every 10 units purchased, you can get 5% off. For every 25, you can get 10% off.

Therefore, instead of buying in batches of 10, the buyer should buy in batches of 25 to get the most out of the discount. The discounted pricing is only valid for 25 units of X if the buyer purchases 30 units of X. So, the remaining five units would still require the total purchase price from the customer.

What Types of Businesses Use Volume Pricing?

Businesses often employ volume discounts as a pricing strategy to encourage customers to purchase larger quantities of their products or services. How can we investigate their use in various sectors?

Type 1 – Manufacturing

The manufacturing sector frequently offers volume discounts to attract wholesalers, merchants, and other significant purchasers. Orders above 1,000 tonnes may be eligible for a 5% discount from a steel manufacturer, orders exceeding 5,000 tonnes for a 10% discount, and orders exceeding 10,000 tonnes for a 15% discount. The firm can use economies of scale and boost production efficiency since buyers are incentivized to purchase more outstanding orders.

Type 2 – Wholesale

Retailers, companies, and other resellers are the usual targets of wholesalers’ volume discounts. For example, With purchases exceeding $5,000, 15% over $10,000, and 20% over $20,000, a wholesale clothes distributor may provide a discount. Wholesalers see an increase in sales volume and a decrease in their per-unit expenses due to retailers stocking up on bigger quantities.

Type 3 – Retail

Businesses frequently employ volume discounts as a marketing tool to entice consumers to make larger purchases or participate in sales events such as “buy one, get one free” or “buy three, get 20% off.” To encourage more significant purchases and lower the cost per unit for the customer, a supermarket may provide a 10% discount when customers buy a case (24 cans) of a particular soda brand.

Type 4 – eCommerce Business 

Online businesses sometimes offer volume discounts to boost the average order value and encourage more significant purchases. On an online store selling office supplies, for instance, customers can save 5% when they spend $100, 10% when they spend $250, and free shipping when they spend $500. The store can offset delivery expenses and encourage higher purchases with this method.

Discounts for large purchases can take several forms, including percentage reductions, flat rate reductions, or price tiers according to minimum and maximum quantities. Businesses offering these discounts hope their consumers will buy more, boosting sales and allowing them to take advantage of economies of scale, improving their profits.

Three Advantages of Volume Discounting

Many firms, including small enterprises and eCommerce startups, use volume pricing systems. You can benefit from the product pricing model by:

Advantage 1 – Grab the Attention of More People

With a volume discount, businesses may attract buyers of all sizes, regardless of their desired purchase quantity. Market to those who can afford more units and those who may only need to buy a single or double item if you provide them with a good enough incentive. Customers who purchase in bulk can take advantage of the discounted price, while new customers who want a few units can pay the total price.

For example, consider a bookstore discounting a famous book by the dozen. Libraries and book clubs are examples of bulk customers who might save money buying in bulk. Meanwhile, readers looking to buy a single copy or two can still do so at the standard price and still take advantage of the discount. In this approach, the bookshop may attract serious and casual book buyers.

Advantage 2 – Provide Reasonable Rates

You can achieve a healthy profit margin by offering low prices on large quantities using a volume discount pricing model. You can attract new consumers and keep the ones you already have by providing competitive pricing per unit.

Take the example of a wholesaler that sells office products. By giving a discount for buying in bulk, they can provide competitive prices per unit for large businesses or corporations. This lets the wholesaler keep a healthy profit margin while selling at lower prices than rivals who don’t offer discounts for buying in bulk. However, smaller companies or people who only need a few items can still buy from the wholesaler and not feel cheated because they will pay the regular retail price. This pricing approach helps the wholesaler get and keep customers of all sizes by offering fair prices for various order sizes.

Advantage 3 – Increase Product Sales

A volume pricing structure might help you move units off your shelves faster if your company sells many products by encouraging customers to buy more. You can reduce the overall cost of inventory storage and boost income using this.

For instance, a grocery store that gives discounts on bulk purchases of non-perishable things like canned or dry foods. As an incentive for customers to buy more, the shop can get these items off the shelves faster by offering discounts on larger orders. This lowers the cost of keeping extra stock and brings in more money because more items are being sold. Customers may also want to stock up on things they use often, which can lead to repeat purchases and customer trust. By setting prices this way, the grocery shop can sell more items, save on storage, and make more money overall.

Bottom Line 

Businesses can generate increased sales volume and encourage larger purchases through volume pricing. Companies can attract budget-conscious clients and simplify their operations by providing per-unit discounts for bulk volumes. Customers can save a lot of money and cut down on shopping trips. Firms must carefully plan their volume pricing structure to maximise profits while keeping customers happy.