What is the percentage point difference between the profit percentage and discount percentage?

Discounts, loyalty offers and bulk buy pricing are common business practices that can help you:

• move stock
• attract new or inactive customers
• persuade indecisive customers to buy
• reach sales targets during a slow sales period
• improve cash flow
• get free advertising on sales websites

Is discounting worth it?

Discounting can attract more business but can also decrease your profits.

Before you cut your sales price, do some planning to make sure you'll still make a profit on the extra orders coming in:

1. Know your current profit margin, markup and break-even point.
2. Calculate the best discount price to still make a profit.
3. Prepare a marketing plan to encourage new customers and bring inactive customers back.
4. Find out what your competitors are offering and their current pricing.
5. Review other options for promoting sales offers without reducing the price.
6. Decide how long the sales price will be offered.
7. Review your accounts for any regular times of the week, month or year that your business has a sales dip.

How discounting affects your sales targets

Whenever you change the sales price (and markup) of your goods and services, it's important to understand how it will affect your profit margins and sales targets.

To successfully run a sale without making a loss, you need to know your gross margin, markup and breakeven figures so you can work out how the discounted price will affect your profit.

In the following table, you can use your gross margin figure (top row) to see how much your sales volume will need to increase (middle cells) when using different discount amounts (in the left-hand column).

For example, if your gross margin is 40% and you decide to discount your goods or services by 5%, you'll need to increase your sales volume by 14.3% to make a profit.

Types of discounting strategies

Depending on your business and customer base, you might choose to offer a:

• special offer or price
• package or bundle
• quantity discount
• value added offer
• seasonal or periodic discount

When choosing your discounting strategy, it's important to understand your customers and what offers they will be attracted to.

The most typical type of discounting strategy is a special offer or pricing deal. This could be a percentage or set amount, such as $10 off a product or 20% off selected products.

But if traditional discounting isn't working to drive sales, there are other options you can offer that might be more successful – such as free shipping or gift wrapping.

Package or bundle stock

Packaging or bundling stock encourages customers to order more stock or services to be rewarded with a bundled pricing.

Bundling works when the customer can see the benefit of complementary products or services and buying them together at the discounted price. It can also be a good way to move less popular or old stock by bundling it with something that customers see more value in.

For example, a beauty salon could offer bundled pricing for things like:

• buying shampoo and conditioner at the same time, or
• having both a manicure and a pedicure

Quantity discounts

You could also consider offering a percentage discount or 'get one free' when customers buy a set number of items. This increases the size and value of customer orders, and helps to move stock that may be needed for clearance items.

It's also a good idea when your supplier offers discounts for larger order volumes and you can purchase stock at a reduced price.

For example, grocery shops and retailers regularly encourage shoppers with quantity discounts such as:

• buy one get one free
• get $50 off when you spend $300

Value added offers

Without discounting the price, you can offer your customers an added value to their purchases.

Most value-add offers are a priceless item that's of benefit to the customer. For example:

• A computer hardware supplier could provide an installation guide, or free installation support with purchase.
• A hairdresser can offer a free treatment or blow wave with haircut.

These offers are a good way to identify any services you offer that your competitor doesn't.

Remember though that while some of these offers are free of cost, it might require your time or resources to provide the service.

Seasonal or periodic discounts

There are times of the year, month, week or day when some goods and services have less demand than other times. This is true for seasonal clothing, festive merchandise, travel bookings and restaurants.

By analysing your sales cycles and highlighting these periods, you can offer discounts for customers who buy merchandise or services out-of-season.

For example:

• restaurants offering mid-week specials or deals outside of the lunch or dinner rush
• surf shops offering sales of last season's stock over winter or ski shops offering the same discounts over summer.

See our pricing strategy page for more information about pricing products to meet demand.

12* CP = 9* Sp Cp/Sp = 3/4. - - - [1] 10* discount = 5* profit = 5* (Sp-Cp) So, Discount /(Sp-Cp) = 1/2. - - - [2] From [1], Sp-Cp = 4-3 = 1 So divide [2] by 2 to get Sp-Cp as 1 Then [2] becomes, Discount /(Sp-Cp) = 0.5/1 Mp=Sp+Discount =4+0.5 =4.5 Now,Cp:Sp:Mp = 3:4.5:4 = 6:9:8 - - - [3] P% = P/Cp *100.= (8-6)/6 *100 = 100/3 = 33.33% From [3], Discount % = discount /Mp *100 =(9-8)/9 *100 =11.11% So, P%-D% = 33.33-11.11 = 22.22%

Updated March 13, 2018

By Vivek Saxena

When examining data on a graph or reading facts and figures from a newspaper, it’s important you understand the difference between percent and percentage point. Both terms are used to describe the relationship between two sets of data. However, percent refers to the rate of change, whereas percentage point measures the actual amount of change.

A percent is a ratio used to describe the relationship between two sets of numbers. It’s determined by dividing the rate of change by the new value, multiplying the result by 100, and adding a percentage sign to the result. For example, if 40 percent of adults smoked cigarettes in 2004 and 60 percent of adults smoked cigarettes in 2014, then to determine the percent change, we would divide 20 -- 60 minus 40 -- by 60 -- the original amount -- and multiply the result by 100. The percent change would therefore be 33 percent. This means that since 2004, the number of adults who smoke has increased by a rate of 33 percent.

You obtain a percentage point by subtracting old data from new data. For instance, if 40 percent of adults smoked cigarettes in 2004 and 60 percent of adults smoked cigarettes in 2014, then the percent change could be found by subtracting 40 percent from 60 percent, which would give us 20 percent. We could say that the number of adults who smoke cigarettes has risen by an amount equivalent to 20 percentage points.

The difference between a percent and a percentage point is related to ambiguity, which is why it's important you use the correct term. If you were to say that the number of adult smokers increased by 5 percent from an original value of 20 percent, you would be saying that the current estimate of smokers is at 21 percent. If you said it increased by 5 percentage points, however, then the final value would be 25 percent.

The difference between a percent and a percentage point isn't commonly known, so writers sometimes use it to deceive their audience. For instance, when President George W. Bush proposed partially privatizing Social Security in 2004, some commentators said that only "2 percent" of the average American's Social Security taxes would be funneled into private accounts. That was a misleading statement, said another commentator, John Allen Paulos on ABC News. He looked at the numbers and said the writers meant that the average person's income taxes directed toward Social Security would drop from 6.2 to 4.2 percent, which is a change of 2 percentage points. The actual percent change, he said, was 32 percent.