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Many types of discounts and allowances are granted to a manufacturer's customers depending on the services offered by the buyer, volume of purchases, time of delivery, geographic location, type of payment, and so on. Retailer’s frequently negotiate “terms" of the purchase contract to get the best “price.“
Trade Discounts Manufacturers offer their product lines to retail buyers at list price less a “trade discount.” The trade discount is the basic discount allowed to a member of the distribution chain; list price less the trade discount equals wholesale price. An apparel manufacturer grants a retail buyer a reduce from the list price because the retailer markets the goods to the ultimate consumer. The commonly used trade discount varies from one product fine to another. Manufacturers of women's apparel have traditionally used price lists formulated with a 50% trade discount. This means the manufacturer’s, wholesale price to the retailer is half of the recommended retail or list price.
In addition to the trade discount, the list price is surrounded by a complex series of negotiable add-ons, discounts, and allowances. The multitude terms that might be negotiated, if not carefully controlled, can totally erode the manufacturer’s profit margin.
Other Discounts and Allowances Wholesale 'prices may be adjusted up or down by special "terms' that are identified or negotiated in the purchase agreement. The contract terms can determine the profitability of a particular sale. Terms might include quantity or seasonal discounts, payment terms, cash discounts, or dating. Most terms represent costs to the manufacturer. These costs are figured into the total cost structure of the manufacturing firm as a part of administrative overhead.
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