Build authority from the floor, not from a benchmark
| Input or boundary | Unit and source | Decision use |
|---|---|---|
| List price | CU per unit on one indirect-tax basis; approved price record | Starting point for the exception calculation. |
| Variable cost | CU per unit on the same basis; reconciled cost record | Shows direct contribution after a proposed discount. |
| Documented floor | CU per unit; business-owned scenario and approval | Escalation or stop boundary, not evidence of customer willingness to pay. |
| Authority band | Percentage or CU range; explicit internal assumption | Defines who may approve which exception and for how long. |
| Scope and evidence | Customer segment, quantity, term, inclusions and reason; decision record | Prevents an exception from silently changing the offer or becoming permanent. |
discounted price = list price × (1 - discount rate); unit contribution = discounted price - variable cost per unit
- list price
- Approved starting price on the declared basis (CU/unit) — business record
- discount rate
- Proposed exception expressed as a decimal (ratio) — user input
- variable cost per unit
- Cost that changes with the unit inside the stated scope (CU/unit) — business record or labelled assumption
The calculation shows contribution inside the chosen cost boundary. It does not prove that the floor covers every business cost or that a customer will accept the price.
Worked example: set representative, manager and stop bands
The example uses a CU100 list price, CU55 variable cost and a business-chosen CU88 floor. The 5% and 12% authority boundaries are fictional.
| Step | Inputs and arithmetic | Result and interpretation |
|---|---|---|
| 1. List-price contribution | CU100 - CU55 | CU45 unit contribution before any exception. |
| 2. Representative boundary | CU100 × (1 - 5%) = CU95; CU95 - CU55 | CU40 unit contribution. A representative may approve up to 5% only when the recorded scope and reason pass. |
| 3. Manager boundary | CU100 × (1 - 12%) = CU88; CU88 - CU55 | CU33 unit contribution. Discounts above 5% require manager review and cannot go below the chosen CU88 floor. |
| 4. Below-floor request | 13% discount gives CU87; CU87 - CU55 | CU32 contribution but below the approved floor: stop, escalate or change scope. |
| 5. Record the exception | Customer segment + quantity + term + approver + reason + expiry | A reproducible decision record; not an open-ended price promise. |
Test what would change the decision
| Case | Recalculation or evidence | Decision consequence |
|---|---|---|
| Variable cost rises to CU62 | At CU88, contribution falls from CU33 to CU26. | Recalculate the floor and authority bands before approving another exception. |
| Quantity changes delivery cost | Replace the unit-cost assumption with the reconciled quantity scenario. | Do not apply the same band when the order changes the cost boundary. |
| Repeated manager exceptions | Review observed contribution and reasons by approved aggregate category, without collecting customer identifiers in product analytics. | Change the offer, price architecture or policy instead of normalising undocumented exceptions. |
Turn a price exception into a controlled decision
Use this sequence
- Confirm the current list price, cost scope, floor and indirect-tax basis. (not complete)
- State the customer segment, quantity, term, inclusions and reason for the exception. (not complete)
- Calculate the proposed price and unit contribution before choosing an approver. (not complete)
- Approve only within the named band; escalate or stop outside it. (not complete)
- Record the approver, reason, scope, decision date and expiry in the business system. (not complete)
- Review observed exception patterns and contribution before changing the bands. (not complete)
Mistakes that invalidate the comparison
- Copying an industry discount percentage without reconciling the business floor.
- Giving a representative a percentage band but no scope, approver or expiry.
- Treating positive unit contribution as proof that every wider cost is recovered.
- Letting an exception change service, quantity, payment or support terms without recosting.
- Coordinating prices, discounts or future pricing policy with competitors.
Use the registered calculation owner
- Minimum Profitable Price Planner
Protect a negotiation floor
- Discount Profit Impact Planner
Find whether added volume can recover profit after a discount
- Target Margin & Pricing Planner
Set a price for a target gross margin
Questions and limitations
- Is 5% a recommended sales discount allowance?
- No. It is a fictional boundary used to show the workflow. A real band must be derived from the business cost, floor, offer and approval evidence.
- Can a positive contribution justify a below-floor sale?
- Not automatically. The floor may include a wider cost or minimum-contribution decision. Reconcile the full approved boundary before making an exception.
- Should competitor discounts determine the band?
- No. Competitor information may inform independent market research, but the business must set its own prices and must not coordinate pricing with competitors.
Sources and evidence scope
- Choose a pricing strategy — business.gov.au: Primary small-business guidance for reconciling cost, goals, market evidence, customer value and capacity. It supplies no universal margin, package mix, discount band or demand response.
- Price fixing — U.S. Federal Trade Commission: U.S.-specific competition guidance supporting only the caution against competitor coordination. It is not global legal advice.