Trade Discount: Definition & Formula

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  • 0:01 What Is a Trade Discount?
  • 1:32 Calculating Trade Discount
  • 2:38 Lesson Summary
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Lesson Transcript
Instructor: Tara Schofield
This lesson discusses the benefits of trade discounts. We will define the term, look at a few examples of trade discounts and explore how to calculate trade discount.

What Is a Trade Discount?

A trade discount is a discount that is taken off of the retail or published price of products. Such discounts are often offered to companies that buy in bulk or meet the conditions of a special. This discount could also be offered on services. For instance, shipping companies frequently offer trade discounts to customers who ship a high volume of shipments. Think about and the huge volume of packages they ship on a daily basis. Because they have such high volume, shipping companies will offer substantial trade discounts to Amazon in hopes of becoming their selected shipper.

As mentioned, trade discounts may also apply to bulk purchases. These purchases may be a one-time buy but with a substantial savings offered for purchasing the items. These discounts are typically used for large items, close-out products, or items that are purchased in large quantities.

Trade discounts can be offered on everything from items used for manufacturing to office supplies. By offering a trade discount, companies are trying to secure repeat, consistent business. Let's say you own a business with a large number of office employees and your company uses a significant amount of office supplies and copy paper. Your local supply company has contacted you and wants to be your main office supply provider. They have offered you a 30% discount on all products purchased if you meet their minimum amount. You know you will qualify for the trade discount. Because their prices are fair to begin with, the trade discount is the incentive you need to decide to purchase from this company.

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