Companies offer discounts to customers for a variety of reasons. A business may be trying to attract a new customer demographic, or it may be trying to increase customer demand for a certain product or service. Whatever the reason for offering a discount, companies must make sure they can either break even or make a profit at a lower price. For some companies, a small initial loss in revenue can be worth the increased customer base.
There are two main ways to offer a discount: The first is a percentage off the original price, and the second is a specific dollar amount off of the original price. In this article, we explain how to calculate a discount and provide examples.
Related: SMART Goals: Definition and Examples
How to calculate a discount
Determining a discount is a straightforward calculation. Follow the steps below:
1. Convert the percentage to a decimal
Represent the discount percentage in decimal form. Calculators have a function for this, or you can simply move the decimal point two places to the left.
Example: Shoe Mart wants to offer a 25% discount off winter boots. 25% in decimal form is 0.25.
2. Multiply the original price by the decimal
Take the original price of the item and multiply it by the decimal determined in step one.
Example: Winter boots originally sold for $147. Multiply $147 by 0.25 to find the amount of the discount. $145 x 0.25 = $36.75, so the boots are discounted by $36.75.
3. Subtract the discount from the original price
Take the discounted dollar amount from step two and subtract it from the original price.
Example: $147 - $36.75 = $110.25. The discounted price of the winter boots is $110.25.
How to use estimation to calculate a discount
Sometimes it is not practical to spend time calculating the exact discount to the penny. In these instances, it is useful to know how to quickly estimate a discount:
- Round the original price
- Find 10%
- Determine "10s"
- Estimate the discount
- Account for 5%
- Add 5%
Calculate the sale price
1. Round the original price
Take the original price of the product and round it to the nearest 10s place.
Example: Let's use the Shoe Mart example from above to estimate the discount. Winter boots were originally sold for $147. That rounds to $150.
2. Find 10% of the rounded number
To find 10% of the rounded original price, move the decimal point one place to the left. This is 10% of that number.
Example: The rounded price of the winter boots is $150. If we move the decimal from the right side of the zero over one place to the left, we find that 10% of $150 is $15.
3. Determine "10s"
Figure out how many 10s are in the discount. Do not worry about any 5s at this point.
Example: There are two 10s in 25%. We know this by looking in the 10s place and seeing the number 2.
4. Estimate the discount
Use the number of 10s determined in step three with the 10% dollar amount from step two to estimate the discount. Multiply the 10% dollar amount by the number of 10s in the discount.
Example: The rounded price of the winter boots is $150. 10% of $150 is $15. The discount is 25%. There are two 10s in 25%. $15 x 2 = $30.
5. Account for 5%
Some discounts may have a 5 in the hundreds place. If this is the case, find the dollar amount for the remaining 5% by dividing the dollar amount for 10% by two.
Example: The Shoe Mart discount on winter boots is 25%. We need to account for the remaining 5%. 10% of the original rounded price of $150 is $15. $15 divided by 2 is $7.50. 5% of $150 is $7.50.
6. Add 5%
Take the 5% dollar amount and add it to the number found in step four.
Example: We need to add the remaining 5% to our 20% discount. In step four, we found that 20% of $150 is $30. In step five we found 5% of $150 is $7.50. $30 + $7.50 = $37.50. 25% of $150 is $37.50.
7. Calculate the sale price
Take the discount found in step six and subtract it from the rounded original price. This is your estimated discounted price.
Example: The winter boots at Shoe Mart were rounded from $147 to $150. 25% of $150 is $37.50. $150 - $37.50 = $112.50. The estimated sale price of the winter boots is $112.50.
Here are more examples of how to find the discounted price:
Abbott's Clothiers wants to have a season's end sale on winter sweaters. The original price of the sweaters is $80. They would like to discount the sweaters by 15%. How much will the sweaters cost if they are discounted by 15%?
First, Abbott's Clothiers converts 15% into a decimal of 0.15. Then, they multiply 0.15 by $80, which is $12. This is the discounted amount. Finally, they subtract $12 from the original sweater price of $80. With the 15% discount, the sweaters cost $68.
Forever Jewelers wants to run a promotion for its customers. They are offering a 10% discount on wedding bands with the purchase of a full-price engagement ring. The wedding bands vary in cost, so they use the price of their most popular wedding band, $1,000, to estimate how much the discounted price will be.
First, they change 10% into a decimal of 0.10. They take 0.10 and multiply it by the original price of the wedding band, $1,000. This equals $100. Lastly, they subtract the discount from the original price, or $1,000 - $100. This equals $900. The discounted wedding bands will cost $900.