Dumb Question-----Discounts??

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jttheclockman

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OK I probably should know this but always wondered because I have to say I do not know. Maybe Ed or other vendors can explain. I get this at shows also and I do not do discounts unless it is on my terms . But here goes. We see many times vendors sell their product and offer discounts with the more quantity you buy. Just about everyone does this. Pen kits are notorious for this. Buy 10 get 5% buy 20 get 10% and buy 50 get 15% . Now if the vendor can sell that many kits at 15% less than his original price why not just sell all at that price and then they should sell more because they are selling under their competition. If a vendor can buy the kits cheaper and I assume the discount went as far up the ladder to the manufacturer and it was passed onto the vendor now. I just do not get the bulk pricing thing.

I get this a few times who want to buy certain items from me but want to get a quantity discount because they are ordering more than one. But this is tough to do for me because each piece is made by hand one at a time. So if i make one or 100 they still take the same amount of time and material so how do I discount. I have tried to do this but it cuts into any profit I hope to make. I am sure that vendors see this too even though they do not make the product. Many ways to entice buyers with discounts but as I said it is puzzling how a vendor can offer that 15% and still make a profit and yet offer the same product for higher if you buy less and make more profit. Now inventory and storage thing will probably get brought up but if you sell at the lower price you are moving more volume so storage is not an issue. I have seen things sold by vendors who advertise no sales and same price always. Wonder if that works just as well as offering discounts. Maybe just different sales tactics but it has always confused me.
 
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Willee

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The Lazer engraving suppliers have wood pens for around $2.
I keep one or two of them in my case.
When someone asks for a quantity discount I offer a free pen and give them one of those.
I also sell them for $5 to the ones that complain that my pens are to expensive.


Are two examples ... they are cheaply made but you get what you pay for.
 

monophoto

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John

That's an excellent question. I think that the answer involves an economic concept called 'added value'.

A kit retailer buys large quantities of kits from his supplier, warehouses them, and then resells them to pen turners. As a pen turner, you (in theory) could also buy from the wholesaler, but the problem there might be that the wholesaler wants to sell in quantities of thousands, and you want to buy in multiples of ten. So the value that the kit retailer brings to the process is to serve as the 'manifold' that receives large quantities, and then distributers onwards in small quantities. So on average, the effort that the kit retailer actually expends on each kit that he sells is no more than a few minutes, and probably more like a few seconds of his time.

On the other hand, as you have noted, you have to convert kits into finished pens, and that entails turning blanks, finishing, assembly, etc. I don't know how you work, but in my shop it takes me upwards of an hour to convert a kit into a final pen. That time, translated into dollars, the the turner's added value in the final product.

So what that means is that each pen that you sell consumes a lot of your personal time, whereas the kit that the retailer sells consumes only seconds of his time. That is, his added value is far lower that your added value.

Going a step further, the kit retailer buys a few thousand kits at a price of X each, and then sells them to pen turners at a prices that are significantly greater than his purchasing price. He can afford to offer quantity discounts because the time required for him to process an order for 100 kits is about the same as the time that it takes for him to process an order for one kit. Furthermore, he always has a lot of capital ties up in inventory, and the faster he can move that inventory, the faster he can order more kits to repeat the process. So for him, its purely a commodity volume game.

But the individual pen turner has less cash tied up in physical inventory, but relatively more capital tied up in unsold, finished pens that each have consumed a finite amount of the one truly limited resource he has - the time he put into converting the kit into a finished pen. The penturner contributes more added value, and therefore needs to get a prices that reflects an added value that is unrelated to volume.
 

darrin1200

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I also believe, that one of the contributing factors is the customers desire for a deal.

I am a retailer on Etsy, and recently Etsy has made a push to force vendors into offering free shipping to US purchasers. Well guess what, shipping is not free, no matter how you slice it. I haven't set this up yet, because here in Canada its a little trickier, and I also didn't believe that raising my prices to cover shipping costs would increase my sales.
However a friend of mine, one town over, did go through the hassle of raising all his prices and then offering Free Shipping. He and I we astounded, that as soon as he offered the free shipping, sales increased. Even though, the price ended up, for some people, higher than it was before with the shipping separate.
People will pay more for a perceived deal. Going through the grocery store, I have actually found Buy1get2 deals that were more expensive than individual prices. Or that the price of the family pack worked out to be more expensive than the small convenience packs. Its just part of our society today.
I will be adjusting my Etsy prices soon.
 

ed4copies

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It's really pretty simple: Suppose I buy a kit for $6 and I sell ONE at $10, I have profited $4. Well, not really, I have spent about 50 cents on processing payment--cc or paypal. I have spent about 6-7 minutes ($1.50 at $15 per hour, no benfits added) finding the kit and putting it into a flat rate box and printing a label (another overhead cost, the shipping company adds another "flat fee") . So, we have "netted" $2 on the order.

Now, someone buys 50 kits and I charge $8 each. I collect $400. My cost is $300. The processing charge is about $15. If they are NOT mix and match, finding the 50 kits takes the same amount of time and effort as the single kit, so my labor cost is still $1.50 and the mailing fees are still the same. NOW, I net a little over $80.

This is complicated by our "mix and match", since that larger order will often take a LOT LONGER to pick. Generally about 20-30 minutes to pick and pack--But Dawn and I don't get paid by the hour (I work a little over 70 hours a week and she is much more.) So, thankfully we enjoy what we do.

But, this does show there are "economies of scale" to larger orders. When I was a purchaser, I was very aware of the discounts I gained by large purchases--as a vendor at art and craft venues I knew my margin was better, because I had lots of "free" kits. (I valued every kit at "onesy" price, so I had 20 free kits for every 100 I bought) I often used the "free" kits for replacement parts--but then, they were "free", so that added to my competitive advantage.

Hope that is an adequate answer--
Ed
 

ed4copies

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As for "Value added", PSI employs about 100 people, CSUSA about 25, I am told. Someone has to pay for all those "labor hours". The pen kits are not just "pull and pack". Our website has well over 10,000 skus, which means someone has to design, take pics, write copy and publish all those pages. Aftermarket support (broken parts, hand-holding instructions, etc) are now "expected", I do it for us for free---PSI employs about 5 people to do it for them, as does CSUSA--they DON'T work for free.

Generally, the guys that buy in larger quantities also require far less support!!!
 

mredburn

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All of the kits I produce are hand manufactured, from the original piece,the mold for reproduction, the casting, turning, and the finishing. I do have a discount on 10+ of the same kits. Depending on the kit its between 5 and 10 %. Since I have to hand work all the parts 10 of the same kits saves me setup time on the multiple parts. Once I have the first part mounted and the cuts and dimensions under control, putting the next 9 pieces on takes almost as much time as the setup for the first piece. The only exception are clips, they take the same amount of work no matter how many of a particular one I make. I dont dont discount multiple clip orders.
 

jttheclockman

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First thanks for those that answered and I see the points each person posted. I will use Eds reply because it was detailed and was hoping he answer. With his math and his example if he sold 50 individual pens at $10 each his profit would be $100 compared to $80 for the 50 pens. Leave the mix and match thing out. That is a vendors choice for other reasons. Why not find that common number where say $90 is made and keep one price. Now add the other fringe benefits such as mix and match and candy and freebies such as shipping to compete other vendors. No other factors changed from what I am gathering. Same times worked, same times picked and so forth. I still maybe missing something.

As someone brought up and I tried to articulate in my opening statement too, this is not easy to do selling the finished product because like with me, it takes just as much time to make one at a time no matter how many ordered. Yes you can do some assembly line type work like drilling and gluing in tubes. With my other business of scrolling I sometimes can stack cut 2 or 3 pieces at a time to make up the labor portion but does not do enough to justify savings because scrolling 2 to 3 pieces at once slows down because of the added thickness. I am now using more blades because they dull faster and so on. Again I see Eds point about combining shipping cost and CC fees and things like that but this is where I pay for the tax preparer and those fees to have product shipped in and things. So giving discounts in my eyes is just about impossible. I will reward a returning customer or if someone is buying multiple items but again on my dime and at my wishes. Not written in stone.

Everyone does this and it is something I just can not fully wrap my head around. Are we getting the best deal??
 

jttheclockman

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This does nothing to add. I have a business but do not offer discounts. I believe the type of business means alot too.

By the way this has nothing to do with any vendor or any business of any kind. So do not anyone take offense of this question. heck I take advantage of any discounts I can get. It was a simple question that I had rolling around in my mind. I have so many ideas in my head. I have an active brain.
 
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Gersh

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Interesting. thanks. So the question may not be as dumb as I think it is. Has been asked before.

In addition to Ed's notes before the aforementioned article articulates a point that is valuable in this question.

"To capitalize on the law of diminishing utility: The concept of "the more one person consumes within a period, the less they value a product" is a cornerstone of microeconomic theory. Convenience stores and movie theaters, for instance, understand that thirsty customers are willing to pay a hefty price for the first 12 ounces of a cold soda relative to the next 12 ounces. To entice customers to consume more, the additional per-ounce price is significantly reduced in larger cup sizes. As a result, consumers are often faced with the conundrum of calculating whether it's worth it to spend an extra 75 cents to double the size of our fountain drinks."

Or in other words I only need 3 kits for what I want to do but I'm so close to that multiple discount. Let's see what else I might "need"


(Edited due to using "below" instead of before)
 

jttheclockman

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In addition to Ed's notes before the aforementioned article articulates a point that is valuable in this question.

"To capitalize on the law of diminishing utility: The concept of "the more one person consumes within a period, the less they value a product" is a cornerstone of microeconomic theory. Convenience stores and movie theaters, for instance, understand that thirsty customers are willing to pay a hefty price for the first 12 ounces of a cold soda relative to the next 12 ounces. To entice customers to consume more, the additional per-ounce price is significantly reduced in larger cup sizes. As a result, consumers are often faced with the conundrum of calculating whether it's worth it to spend an extra 75 cents to double the size of our fountain drinks."

Or in other words I only need 3 kits for what I want to do but I'm so close to that multiple discount. Let's see what else I might "need"


(Edited due to using "below" instead of before)
Yea and that is why I said that was a good article. Do not get me wrong, I understand the basics why these things are done but is it necessary to get to the same final results. This is just food for thought here. Again nothing to read into.
 

Gersh

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If they could guarantee that they would sell the same amount of kits then no it wouldn't matter. However by eliminating an incentive to purchase more kits I would be very surprised if they did not see an overall dip in units sold.
 

leehljp

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John,
Your products are in a different category/league than most average retail pen sales where "volume" and "discount" can go together. On occasion, I read on IAP the assembly line process and hear quite a few mention "how quick" a pen can be made when doing volume. Your personality does not fit that. You take every pen to heart with your designing, shaping, assembling and finish, and as a result of the skill level you present - you can command the price you want. Once a person reaches a certain "artistic" level, the time spent on an individual piece increases the value almost exponentially over those of mass production where discounts figure in. The value of your work is FROM your skill as an artist; volume for discount would probably diminish the value.

I don't sell many pens. I don't have the time - but when I do make one, I measure it measure time and again, and if the finish is not absolutely "perfect" from top to bottom, I re-do it, starting all over if necessary. When someone hounds me about making a particular pen for them or as a gift, I make it worth my time. I love making pens for relaxation and thinking of new schemes and ideas, but when I "have to" make one it becomes stressful work. If someone wants to pay me enough to cover the stressful work, I'll do it.

I am not in the same sales genre as you, but the outcome is similar. I don't go for discounts, as each one is skillfully and wonderfully made.

On the other hand, I do give away more than I sell. I give them as individual gifts of appreciation to people who pour their hearts into their work around me, and most couldn't pay the price I that would sell it for - if I did sell them.
 

mark james

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I don't sell many pens. I don't have the time - but when I do make one, I measure it measure time and again, and if the finish is not absolutely "perfect" from top to bottom, I re-do it, starting all over if necessary. When someone hounds me about making a particular pen for them or as a gift, I make it worth my time. I love making pens for relaxation and thinking of new schemes and ideas, but when I "have to" make one it becomes stressful work. If someone wants to pay me enough to cover the stressful work, I'll do it.

Well said, I couldn't agree more. đź‘Ť
 

jttheclockman

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John,
Your products are in a different category/league than most average retail pen sales where "volume" and "discount" can go together. On occasion, I read on IAP the assembly line process and hear quite a few mention "how quick" a pen can be made when doing volume. Your personality does not fit that. You take every pen to heart with your designing, shaping, assembling and finish, and as a result of the skill level you present - you can command the price you want. Once a person reaches a certain "artistic" level, the time spent on an individual piece increases the value almost exponentially over those of mass production where discounts figure in. The value of your work is FROM your skill as an artist; volume for discount would probably diminish the value.

I don't sell many pens. I don't have the time - but when I do make one, I measure it measure time and again, and if the finish is not absolutely "perfect" from top to bottom, I re-do it, starting all over if necessary. When someone hounds me about making a particular pen for them or as a gift, I make it worth my time. I love making pens for relaxation and thinking of new schemes and ideas, but when I "have to" make one it becomes stressful work. If someone wants to pay me enough to cover the stressful work, I'll do it.

I am not in the same sales genre as you, but the outcome is similar. I don't go for discounts, as each one is skillfully and wonderfully made.

On the other hand, I do give away more than I sell. I give them as individual gifts of appreciation to people who pour their hearts into their work around me, and most couldn't pay the price I that would sell it for - if I did sell them.

I agree with you without sounding snobbish but that is why I said there are different types of business. I can not sell in volume and not sure how many who make pens can either without taking a loss. I too have given away my share of things much more than pens. Remember I make clocks. Holiday gifts or family members need not worry when they need a gift for an occasion in my family.

I sound like a broken record here but not to belabor this. I walk into Home Depot and buy a screwdriver and pay a price. I now want to buy 10 screwdrivers for my class ( example) I have to pay the same price for the screwdriver no matter how many I buy because the bottom line price is calculated already. Home Depot did not make that screwdriver, they bought from a source. Not sure if this is making sense. I go to a vendor that sells pen kits or blanks or whatever there is always a discount price associated with volume. I go to Amazon and buy cans of paint I pay the same for one as I would 10 even if I mix and match. So not an online thing.

I know we are throwing the pen business around here because it is a pen site and all but this can apply to other businesses too.

I guess what I am asking is what are these businesses called? Are there terms for each type of business?? Am I way off base here?? Overthinking this?? These are the type of things that rattle around in my brain at times.
 

darrin1200

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I agree with you without sounding snobbish but that is why I said there are different types of business. I can not sell in volume and not sure how many who make pens can either without taking a loss. I too have given away my share of things much more than pens. Remember I make clocks. Holiday gifts or family members need not worry when they need a gift for an occasion in my family.

I sound like a broken record here but not to belabor this. I walk into Home Depot and buy a screwdriver and pay a price. I now want to buy 10 screwdrivers for my class ( example) I have to pay the same price for the screwdriver no matter how many I buy because the bottom line price is calculated already. Home Depot did not make that screwdriver, they bought from a source. Not sure if this is making sense. I go to a vendor that sells pen kits or blanks or whatever there is always a discount price associated with volume. I go to Amazon and buy cans of paint I pay the same for one as I would 10 even if I mix and match. So not an online thing.

I know we are throwing the pen business around here because it is a pen site and all but this can apply to other businesses too.

I guess what I am asking is what are these businesses called? Are there terms for each type of business?? Am I way off base here?? Overthinking this?? These are the type of things that rattle around in my brain at times.


Here with the Home Depot analogy, it is more about the perceived customer. Very few people head to Home Depot who want to buy 10 flat tip screw drivers, so there is no incentive in quantity. They do however run sales every week, dropping prices by 10-50%. Over in their building supplies however, where people are coming to larger quantities, they always offer multiple buy discounts. I've received it with drywall and insulation.


For us makers, it depend on what we are doing. With any of the kit products, I do not find a significant saving by doing multiples, because there is not a lot of time involved with the setup between each step. But with my full custom pens, there is quite a bit of set up between steps. Changing tools, changing headstock pieces, aligning thee tool to set set zero...etc. Most of my pens are each individually designed and made, No time savings even if I am doing 10 at a time, because each one is slightly different and the set up still has to be adjusted.

However, I recently designed a small pocket fountain pen, with the specific purpose of doing them in bulk and cutting down the time cost. This allows me to offer a handmade fountain pen at a very good price. I gave it a simple design, a single material type and created a workflow that literally cut my working time in almost half. To make one pen, start to finish, took a little over an 1.5 hours. But setting up a production line, I was able to make 10 in about 7 hours. If I use a shop rate of say $30, then the single pen cost $45 in labour. While the the cost for each of the bulk run cost $21 in labour. This time saving is reflected in the price of these pens. However, and I let my customers know, that a custom order of a single pen will have an additional cost, even if it is in the same material. While a custom order of 10, gets them the lower price as well. Quite often, customers will opt for one of the pre-made ones. This is essentially the same as bulk pricing, the client gets the advantage of multiples.

That said, I hate production work, and only do them as needed. Speaking of which, I have to make a new batch of these pocket pens.

Pricing is always one of the most difficult things we do.
 

jttheclockman

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Here with the Home Depot analogy, it is more about the perceived customer. Very few people head to Home Depot who want to buy 10 flat tip screw drivers, so there is no incentive in quantity. They do however run sales every week, dropping prices by 10-50%. Over in their building supplies however, where people are coming to larger quantities, they always offer multiple buy discounts. I've received it with drywall and insulation.


For us makers, it depend on what we are doing. With any of the kit products, I do not find a significant saving by doing multiples, because there is not a lot of time involved with the setup between each step. But with my full custom pens, there is quite a bit of set up between steps. Changing tools, changing headstock pieces, aligning thee tool to set set zero...etc. Most of my pens are each individually designed and made, No time savings even if I am doing 10 at a time, because each one is slightly different and the set up still has to be adjusted.

However, I recently designed a small pocket fountain pen, with the specific purpose of doing them in bulk and cutting down the time cost. This allows me to offer a handmade fountain pen at a very good price. I gave it a simple design, a single material type and created a workflow that literally cut my working time in almost half. To make one pen, start to finish, took a little over an 1.5 hours. But setting up a production line, I was able to make 10 in about 7 hours. If I use a shop rate of say $30, then the single pen cost $45 in labour. While the the cost for each of the bulk run cost $21 in labour. This time saving is reflected in the price of these pens. However, and I let my customers know, that a custom order of a single pen will have an additional cost, even if it is in the same material. While a custom order of 10, gets them the lower price as well. Quite often, customers will opt for one of the pre-made ones. This is essentially the same as bulk pricing, the client gets the advantage of multiples.

That said, I hate production work, and only do them as needed. Speaking of which, I have to make a new batch of these pocket pens.

Pricing is always one of the most difficult things we do.

Thanks for the reply. I agree with that last statement for sure. This goes for any handmade items. Because even if you are making one at a time or doing a production run they still are hand made. Putting a $$ value on time and design and the little intricacies of making hand made items is tough . The material part is easy. This is why so many times you see these questions come up here and other sites when asked what is a fair price for such and such pen.
 
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