Figure 33.3 Discounts for volume Present % gross margin 20 25 30 10 15 35 40 50 2% 25 15 11 9 7 6 5 4 3% 43 25 18 14 11 9 8 6 67 36 25 19 15 13 11 Price cut 100 50 33 25 20 17 14 11 7.5% 300 100 60 43 33 27 23 18 10% 200 100 67 50 40 33 25 15% 300 150 100 60 43 33 400 300 133 100 66 20% The S volume increase required to maintain profit after a price cut For a supplier making a gross margin of 20 per cent, a discount in price of 5 per cent will require an extra 33 per cent volume for cash profit to remain the same as before the discount. (This calculation doesn't take account of any resulting economies of scale, nor of the notion of marginal pricing and contribution to overheads, but even so, the figures are rather arresting.) Buyers have the mathematics of the relationships between price and volume engraved on their hearts, which is why they are so keen to learn their suppliers' profit margins: it puts them in the driving seat for all discount-for-volume negotiations. Sales professionals are too often rather less well informed. Do they even know their margins in the first place (let alone the mathematics of the relationship to price and volume)? There are two common reasons why sales professionals are often denied this information: Their business systems are not able to measure profit down to individual customer level. The measurements are made, but sales professionals are not trusted with the information for fear that they will tell the customer. Review the volume discount on page 372 - For a supplier making a gross margin of 35% and agreeing to a price cut of 3%, what is the percentage of volume increase to maintain a cash profit of the same amount prior to the price cut