What Are Trade Discounts?

Nowadays, professionals who offer goods to clients have many opportunities to improve their business operations and increase overall profit. One of the most popular options is using trade discounts. But, what are trade discounts, and how can you use them to your advantage?

Trade discounts are a critical component of business-to-business transactions. As manufacturers, we often use trade discounts to increase sales volume and build loyal relationships with our clients. But what’s in it for you as our associate? Let’s find out.

What Are Trade Discounts?

There are two types of prices in every industry – market prices and trade prices. Market prices represent the current price of a product or service and are determined by supply and demand. They are generally offered to end customers. Trade prices, on the other hand, are determined by applying a trade discount to the market price. But what are trade discounts?

The definition of a trade discount is straightforward. Trade discounts represent special reductions in the price list for business-to-business transactions. Trade discounts are primarily given for bulk purchases and to associates who frequently purchase from the same supplier. The exact terms and conditions for using trade discounts can be negotiated between the seller and buyer.

There can be a slight difference in how manufacturers and wholesale traders work. For instance, at PERRY Luxe, our trade account holders are the only people authorized to purchase our high-end to the trade furniture pieces. Other retailers, on the other hand, might offer their products to the public for a market price and to professionals with trade discounts. As you can see, the main difference between the two is the exclusivity of the products.

Who Is Eligible for a Trade Discount?

Manufacturers or vendors determine the eligibility criteria for trade discounts. Typically, trade discounts are only offered to companies or individuals who purchase from the same vendor frequently or order goods in larger quantities.

In the furniture industry, most manufacturers have additional criteria. To get access to the trade furniture, you will probably need:

• A business license
• A state tax form

Single vs series discounts

There are two types of trade discounts based on the number of conditions that must be met to receive a trade discount – single trade and discount series. Single discounts are most commonly used and are popular under the name of “one-off” discounts. To receive the discount, you only need to meet one specific condition, which can be anything from paying in cash to bulk purchases and purchasing within the determined promotional period.

But what is a trade discount series? Discount series are a special type of price reduction that will be applied if the buyer meets several conditions.

In addition, a series of discounts are offered for each condition that is met. One example is offering a 20/10/5 split. How the split discount works is that initially 20% is deducted from the retail price of the goods. Next, the discounted price is further reduced by 10%. Then, from the new price, an additional 5% is reduced, which will be the final trade discount price.

What Is a Typical Trade Discount?

We, as suppliers, have the freedom to determine the trade discount. Generally, a typical trade discount ranges between 20% and 50%.

The exact amount of a trade discount can depend on various factors such as:

• Type of product and their lifecycle
• Purchase volume
• Buyer-seller relationship and customer loyalty
• Market trends and conditions
• Payment terms
• Seasonal factors

Benefits of Trade Discounts

Understanding what is discount trading, requires getting familiar with its basic advantages. The first and most obvious benefit is cost-saving. If you find a seller that will offer a trade discount, you can significantly reduce the budget for purchasing the goods.

The higher the trade discount, the higher the profit margin you can earn. When you resell the goods, you can decide on their resale price and directly influence the amount of money you will earn.

Lastly, you can enhance your overall market competitiveness. When you purchase goods from trade-only vendors like PERRY Luxe, you have the opportunity to offer competitive prices to your customers, while still making a decent profit.

Conclusion

Let’s recap. What are trade discounts? Trade discounts are determined reductions of the retail price offered to businesses or industry professionals when they meet certain criteria. They are generally used for business-to-business transactions and are available for frequent buyers or bulk purchases. They typically range between 20% and 50% but can also be lower or higher depending on various factors.