Updated July 25, 2023
Discount Formula (Table of Contents)
What is the Discount Formula?
The term “discount” refers to the pricing system wherein the price of a commodity is lower than its listed price. In other words, a discount is a type of price deduction of a product that is mostly seen in consumer transactions, where the consumers are offered discounts on various products to boost sales.
The formula for discount can either be derived by deducting the selling price of the product from its listed price or by multiplying the offered discount rate and the listed price of the product. Mathematically, the discount is represented as below,
or
Examples of Discount Formula (With Excel Template)
Let’s take an example to understand the calculation of the Discount Formula in a better manner.
Discount Formula – Example #1
Let us take the example of a video store owner in the state of Ohio. Recently, the owner has opened a new store at a nearby location and as such to draw more footfall the new store is offering a 10% discount on the DVDs that it sells for $15. Calculate the offered discount and the selling price of each DVD.
Solution:
Discount is calculated using the formula given below
Discount = Listed Price * Discount Rate
- Discount = $15 * 10%
- Discount = $1.50
Selling Price is calculated using the formula given below
Selling Price = Listed Price – Discount
- Selling Price = $15 – $1.50
- Selling Price = $13.50
Therefore, the offered discount and selling price of each DVD are $1.50 and $13.50 respectively.
Discount Formula – Example #2
Let us take the example of a department store that is offering flash sale discounts to clear all its stock. Apparently, the store is selling dresses worth $150 each at a discounted price of $120. Calculate the offered discount and the discount rate for each dress.
Solution:
Discount is calculated using the formula given below
Discount = Listed Price – Selling Price
- Discount = $150 – $120
- Discount = $30
Discount Rate is calculated using the formula given below
Discount Rate = Discount / Listed Price * 100%
- Discount Rate = $30 / $150 * 100%
- Discount Rate = 20%
Therefore, the discount and discount rate offered on each dress are $30 and 20% respectively.
Discount Formula – Example #3
Let us take the example of the same department store mentioned in the above example. According to one of its sales promo, if the consumer buys 3 shirts worth $75 each then they will get the fourth shirt for free. Calculate the bundle discount offer and the discount rate.
Solution:
Listed Price is calculated using the formula given below
Listed Price = Price of Each Shirt * Number of Shirts
- Listed Price = $75 * 4
- Listed Price = $300
Selling Price is calculated using the formula given below
Selling Price = Price of each Shirt * Number of Shirts
- Selling Price = $75 * 3 [since the fourth shirt is free]
- Selling Price = $225
Discount is calculated using the formula given below
Discount = Listed Price – Selling Price
- Discount = $300 – $225
- Discount = $75
Discount Rate is calculated using the formula given below
Discount Rate = Discount / Listed Price * 100%
- Discount Rate = $75 / $300 * 100%
- Discount Rate = 25%
Therefore, the bundle discount and discount rate offered on the shirts are $75 and 25% respectively.
Explanation
The first formula for discount can be computed by using the following steps:
Step 1: Firstly, figure out the listed price of the product which is the price printed on it.
Step 2: Now, determine the selling price of the product which is the actual price at which the product is being sold.
Step 3: Finally, the formula for discount can be derived by deducting the selling price (step 2) of the product from its listed price (step 1) as shown below.
Discount = Listed Price – Selling Price
The second formula for discount can be computed by using the following steps:
Step 1: Firstly, figure out the listed price of the product.
Step 2: Now, determine the discount rate offered on the product as part of the sales promotion initiatives.
Step 3: Finally, the formula for discount can be derived by multiplying the offered discount rate (step 2) and the listed price (step 1) of the product as shown below.
Discount = Listed Price * Discount Rate
Relevance and Use of Discount Formula
From the point of view of a business, it is very important to understand the concept of discount because it not only impacts the top line of a company but also the profitability and eventually the bottom line too. As such, it is essential that a company plans its sales promotions accordingly to achieve the desired results. In the case of lower than expected sales volume, the sales discount can negatively impact the net income of the company. It is important to note that the original price (not selling price) should be the denominator for calculating the discount percentage. Usually, the discounts are used to drive sales either after opening a new store or during year-end to clear the existing stock.
Discount Formula Calculator
You can use the following Discount Formula Calculator
| Listed Price | |
| Selling Price | |
| Discount | |
| Discount = | Listed Price – Selling Price |
| = | 0 – 0 |
| = | 0 |
Recommended Articles
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