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The Importance of Volume Discounts

Vendavo< Vendavo December 23, 2021

Among the considerations in pricing segmentation? How volume curve discounts are important to determining sales negotiations. 

Knowing how this works is one way you can arm your sellers with the right negotiated prices for the right customers for every deal. 

There are a few different ways in which companies can have their sales teams provide deal discounts and negotiations. Sometimes deals are streamlined, with approvals based on a complex set of business rules and signoffs. Other times, companies’ deals are based on a sales request and do not reflect similarly across all deals or even all sales executives. 

Understanding Volume Discounts

This is where understanding your volume discount, and how this affects segmentation, is crucial to long-term success. With powerful AI-enabled pricing segmentation, companies can create pricing guidance on a more granular level and better act on a particular customer or set of customers’ willingness-to-pay. By establishing more specific pricing guidance, sales teams have what they need at their fingertips, and with floors, target, and stretch prices they can approve immediately.

When and where should a team consider segmentation as a method to optimize pricing? Always at the highest level. Some of the reasons to apply it: If a company has hundreds or thousands of SKUs, deals are very competitive, and/or pricing guidance across the company is a priority, to name only a few.  

Read more about segmentation and the use of AI to best optimize it.

One aspect of pricing and a critical part of the price waterfall is discounts. A lot of organizations often. put all discounts into one category and continue to provide their customers based on this number. However, one-size-fits-all discounting is not the most efficient way to consider discounts. Two categories should be considered, and Sales should be focusing their discounting power on the negotiated discounts.  

Negotiated Discount = Total Discount – Volume Discount 

Margins increase when volume discounts are not considered in the negotiation process. Ultimately, adjusting for volume allows pricing managers, analysts, and teams to provide better price guidance for Sales by considering willingness to pay and volume separately. 

How do you get there? By isolating the effect of volume discounting from the segmentation and price optimization model before recombining these in your CPQ or CRM systems.  

 There is an apples-and-oranges comparison of discounts offered when ignoring volume effects with discounts and margin. Taking volume effects into consideration from the start means better segmentation. Better segmentation equals better pricing guidance. Better pricing guidance means more sales and increased margin opportunity.