Customer discount policy for B2B sales: rules that hold when a rep pushes

A customer discount policy is a written set of rules for who can give which discount, on which items, for what reason, and for how long. For a distributor it does one job above all: it lets a rep say yes quickly to a reasonable discount and makes an unreasonable one go to someone who can weigh it. Without it, every rep has their own policy, and the customer who pushes hardest gets the best price.

The discounts distributors give

• Trade discount

  By customer type: contractor, OEM, reseller.

• Quantity discount

  For larger orders, usually as price breaks.

• Cash discount

  For early payment, such as 2/10 net 30.

• Promotional

  A set reduction on chosen items for a set period.

• Deal discount

  A one-off reduction to win a specific quote.

The first four are policy: written down, applied the same way to everyone who qualifies. The fifth is where policies break, because it is decided on the phone, under pressure, one quote at a time. Most of the rules below are about that fifth one.

Set discounts in margin, not percent off

A 10% discount sounds the same on every item. It is not. On a bearing with a 31.4% margin, 10% off the price removes almost a third of the gross profit. On a fitting with a 47% margin it removes about a fifth. A policy written in percent off price gives away the most on the items that can least afford it.

Write the limits as a margin floor instead: "no line below 22% margin without approval". The rep can then give more on high-margin items and less on low-margin ones, and the floor holds either way.

An approval matrix

Two details make a matrix work. Approval requests must arrive with the facts attached: the customer, the quantity, the competitor price if there is one, and the margin. And approvals need a time limit, such as two working hours, or reps will route around them.

Rules that hold when a rep pushes

1. Every discount buys something

   Volume, faster payment, a longer commitment or a new product line.

2. Every discount ends

   One-off discounts apply to one quote. Ongoing ones get an end date.

3. Discounts do not stack by accident

   Contract prices, promotions and deal discounts follow a set order.

4. Reasons are recorded

   So the next quote starts from the right price, and reviews have data.

Stacking is the quiet leak. A customer on a contract price who also gets the current promotion and a rep's deal discount can end up far below any price the business meant to offer. Decide the order once: most distributors apply the contract price or the best of the available discounts, not all of them together.

A policy you can adapt

• Trade discounts are set per customer type and reviewed every year.
• Quantity breaks are published on the price list and quote.
• Cash discounts are offered only on accounts with a good payment record.
• Promotions run for a stated period on stated items and do not combine with contract prices.
• Deal discounts follow the approval matrix, with the reason and any competitor price recorded on the quote.
• No line may go below 18% margin on landed cost, after rebates, without director approval.

Measure whether the policy works

Check three things every month: the share of lines that needed approval, the average discount by rep for the same segment, and the margin on lines with a deal discount against those without. If approvals are rare and margins hold, the policy is working. If one rep's average discount is twice another's on the same customers, the policy is a document nobody reads.

Price management software holds the matrix, applies discounts in the right order, asks for approval only when a line crosses a limit, and keeps the reason with the price, so the policy runs on every quote rather than living in a shared drive.