Markup and discount

Markup and discount

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Hello,
A customer gets a rebate on purchases and I would like to calculate the level of "markup" percentage that would be required to get back to the original list price after discount has been applied. Is there a simple formula that can calculate this increase % for me if I know the level of discount? For example if I wanted to sell something for £100 and they get a 10% discount I would need to increase the list price by 11.11% so that when they take the 10% discount the end price is 100.

Replies (9)

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Stepurhan
By stepurhan
20th Jun 2014 12:21

Simple formula, but why

Divide by 0.9.

But why do you need to? Either you are offering customers a discount or you aren't. Essentially you are billing the customer £100. Adding on £11.11 and then taking it off again as a "discount" is not the most honest of business practices.

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Replying to thomas:
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By pawncob
18th Jul 2014 16:35

Honesty is a matter of opinion

stepurhan wrote:

Divide by 0.9.

But why do you need to? Either you are offering customers a discount or you aren't. Essentially you are billing the customer £100. Adding on £11.11 and then taking it off again as a "discount" is not the most honest of business practices.

 

BUT TESCO do it all the time!

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By mrme89
20th Jun 2014 12:22

10% = £100 * 100 / 90

10% = £100 * 100 / 90

20% = £100 * 100 / 80

and so on..

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By mrme89
20th Jun 2014 12:25

Also agree with Stepurhan.

 

 

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By Brend201
18th Jul 2014 16:04

Not dishonest

I agree with the calculations.  More precisely it could be shown for all circumstances as:

Required markup rate % = ([1 / (1 - rebate rate)] -1) x 100

However, I disagree with Stepurban's comment on the honesty of the tactic.  There are many reasons why such an approach is appropriate.  For example, it could be a retrospective rebate where a threshold must be exceeded before the rebate is payable.  Also, a wholesale/trade customer and a retail customer might both pay the same price but the wholesale/trade customer might be eligible for a rebate.  Nothing at all dishonest about any of that, all perfectly appropriate.  

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Replying to DJKL:
Stepurhan
By stepurhan
18th Jul 2014 17:09

Not following your logic

Brend201 wrote:
However, I disagree with Stepurban's comment on the honesty of the tactic.  There are many reasons why such an approach is appropriate.  For example, it could be a retrospective rebate where a threshold must be exceeded before the rebate is payable.  Also, a wholesale/trade customer and a retail customer might both pay the same price but the wholesale/trade customer might be eligible for a rebate.  Nothing at all dishonest about any of that, all perfectly appropriate.
The OP talked about a customer getting a rebate, and asking how to markup the prices so that the price said customer pays (post rebate) is the same as the list price. If a customer ends up paying the list price, then they are not really getting a discount at all. The list price is, by definition, the undiscounted price. To tell someone paying the list price they are getting a discount is dishonest.

Your single sentence examples of the "many" reasons why this is appropriate don't really explain why you think this is not the case. Could you possibly expand on your reasoning, preferably with some figures.

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By BillC
18th Jul 2014 19:29

Uplift

I believe that the simplest expression of the formula is:

U=D/(1-D)  where U=uplift required and D=discount.

I have no idea why such a simple request has generated responses which are mainly concerned with business ethics.  The correspondent has asked a simple question.  Here is the simple answer.  As my daughter would say, "End of!"

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Replying to Matrix:
Stepurhan
By stepurhan
20th Jul 2014 13:35

Their End Of, not mine.

BillC wrote:
I have no idea why such a simple request has generated responses which are mainly concerned with business ethics.  The correspondent has asked a simple question.  Here is the simple answer.  As my daughter would say, "End of!"
So you are saying that if a question said "I am planning to collect a load of money from people and give them nothing in return. I plan to use Paypal to do this, transferring all the money out before any charge-backs can be made. Are there bank accounts that work better with Paypal and are there any pitfalls of using Paypal I should watch out for?" you would just answer the questions on Paypal?  For that matter, if your daughter said to you "I've decided to sell all the furniture to pay for drugs. End of" would you not voice your concerns because she had used this phrase to put a stop to discussion?

If I think a question raises an ethical issue, I will address that ethical issue. If the questioner chooses to ignore those concerns (like your daughter's "End of!" then that is their choice. Their "End Of" does not dictate to me.

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By BillC
20th Jul 2014 20:37

Have I missed something?

Firstly I must say that stepurhan must have a specific agenda here as I did not expect to be flamed for what I wrote.

The logic behind my post is as follows:

1.  I assume that the majority of users of this forum are accountants and that, for the most part, they are honest.  Notwithstanding, I read a question which showed that that the correspondent did not understand elementary mathematics and I provided a solution.  Indeed it is the most elegant solution.

2.  stepurhan imputes some sinister intent behind the question.  He believes that this is an issue which involves business ethics.  I cannot agree with this.

3.  stepurhan needs to remind himself of the concepts of market price and list price.

4.  I am no economist, simply an accountant.  My definition of market price is that which is optimal for the seller and will attract buyers who are prepared to purchase all the seller's goods.

5.  List price, on the other hand, is a published price at which the seller offers his goods for sale.  It must be sub optimal, unless the seller has access to all the market information.  Either the seller will sell out quickly because the price is below the market, or he will be left with some goods because the list price is above the market price.

6.  The correspondent may very well be selling goods to a supermarket at a fine margin.  It is not unknown for the supermarket, in the middle of a contract, to demand a retrospective discount.

7.  If stepurhan was in this position I bet that the first thing that he would want to know would be the price he would have to charge in order for him to put himself back in the position in which he thought he was.

8.  Knowing the required uplift to get back to parity would allow stepurhan to judge whether or not his customer would be likely to be prepared to pay the higher price.

10.  I still do not understand why stepurhan believes that the original correspondent had dodgy motives!

11.  Supermarket retrospective discounts / rebates can be the killer for many small businesses.

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