When the Discount is in the Form of Extra Product or Extended Terms

Charles J. Bodenstab

Vendors will often complicate a special discounted one-time buy situation by offering extra product or extended terms rather than a simple discount off the base price. Since the discount feature of MARS operates with a single percent discount, or a specific dollar discount, the question arises of how to handle these more unusual cases. Actually, the solution is very simple, although not all that self evident. Lets take the two situations individually:

Extra Product

In this case the vendor may propose that you can have an extra case at no cost for every ten cases that you purchase. To deter- mine the optimum amount of product to purchase under this opportunity, simply convert this buying opportunity into a percent discount. This can be done by dividing the amount of extra free product being offered, by the quantity needed to meet the condition plus the extra product, times one hundred (e.g., in our example, that would be 1/11 times 100 or 9.1%). If the quantity needed was one dozen then the discount would be 1/13 X 100 or 7.7%.

Let's verify our calculations with the “one free for ten ordered” example. If each case had a base price of $100, it would have cost $1,100 to buy 11 cases without the discount. With the discount, you will have the 11 cases for $1,000 or $100 less. Saving $100 against an original potential cost of $1,100 is 9.1% (100/1100 times 100 or 9.1%)

Armed with this imputed discount, you can use the discount feature of MARS exactly as it was designed. The only added step needed is to round the purchase up or down manually to meet the vendors requirement. e.g. if the solution comes out to 87 cases then you need to round up or down to 80 or 90 to eliminate the extra units that would not qualify for the free unit. Note incidentally, that you will be actually receiving extra product (the free units) that MARS does not have in its calculations, and does not need. Therefore you should tend to round down rather than up. While this manual rounding is not very scientific, MARS has determined the tight range of purchases, and the final rounding will not materially impact the solution.

Added Terms

The solution to comprehend added terms is particularly easy. Each month of added terms is actually worth about one percent of price. (i.e. the cost of carrying product is very close to one percent a month.)

Consequently, simply add one percent for each one month of added terms being given to the discount. For example, if the vendor offers a 3% discount with an added 60 days of terms, this equates to 5%. (The original 3% plus 2% for the extra two months of terms.) Again, it is then a simple matter to use the MARS discount feature as originally designed.