Rethinking Volume Discounts in B2B: Profitability Must Come Before Generosity
Daniele Todaro
Group Managing Director - CEO at OceanLED | MBA | MSc (Eng) | CEng MIMechE | Driving Exponential Growth | Turnaround Specialist
Introduction
Volume discounts are so common in business-to-business markets that many sales teams apply them without a second thought. It seems logical: customers who buy more deserve better pricing. However, this approach is not always rational, and it can be costly. When misunderstood or misapplied, volume discounts eat into margins and create a false sense of value exchange.
The story of 7-Eleven’s Big Gulp pricing strategy is a helpful starting point. It is simple, clear, and profitable. The convenience chain increased beverage profits by nearly 100% after introducing upsized soft drink options. The price-per-ounce dropped with size, prompting customers to buy more for only slightly higher prices. Given that fountain drinks have extremely low variable costs, this was a masterstroke in pricing design. Customers felt they were getting more for less, and the company quietly extracted significant incremental profit.
However, what works for soda drinks in retail does not always translate seamlessly into B2B markets. In fact, many companies misuse volume discounts entirely, leading to missed revenue opportunities, underappreciated value, and dangerous precedent-setting with their largest accounts.
The Purpose of Volume Discounts: Misunderstood and Misused
The key insight from the Big Gulp example is this: volume discounts work when they increase the total amount purchased beyond what the customer originally intended to buy. This aligns with the economic principle of diminishing marginal utility. The more a person consumes of something, the less additional value they place on each extra unit. Volume discounts are meant to tip the scale, encouraging more purchases by reducing the cost burden of additional units.
In B2B markets, however, discounts are often treated as mandatory. Sales teams give automatic discounts for high volumes without asking the most important question: would the customer have bought this amount anyway?
If the answer is yes, then the discount served no strategic purpose. It reduced margin without increasing revenue. That is a loss, not a reward.
Rewarding Big Clients Without Cutting Prices
Another dangerous misunderstanding is the idea that volume discounts should be given as a show of appreciation to large customers. Of course, key accounts deserve excellent service and attention. However, that should not simply equate to price cuts.
Many B2B companies believe that if a customer is placing a very large order, they must expect a deal. In reality, large purchases are often driven by need or urgency. If a customer genuinely needs what you are offering, especially if the product or service is differentiated, price should not be the primary lever of relationship management.
There are many other ways to show appreciation. Dedicated support, faster lead times, better service levels, exclusive access to product development roadmaps. These are some examples of non-discount gestures that deepen loyalty without hurting the bottom line.
Why One-Size-Fits-All Discounting Is Broken
Many companies publish a single discount table with fixed bands. For example: 10% off for 5,000 units, 15% off for 10,000, and so on. This method is simple, and it gives procurement teams something to work with. However, it is also highly inefficient.
This approach ignores that different customers have different definitions of what a large purchase looks like. For some, 1,000 units may be a significant investment. For others, 20,000 is just another restocking cycle.
The result? Small customers feel excluded, and big customers receive discounts they would likely have accepted the deal without. Nobody wins.
Furthermore, this table-based approach encourages gaming. Customers may split orders across periods to remain within discount bands, or push for artificially higher volumes to secure better pricing. Sales teams may also feel pressured to offer deeper discounts just to match the published matrix, even if that undermines strategic pricing.
Customised Incentives for Every Customer Size
When a B2B company has a capable sales team, there is no excuse for relying solely on standard discount tables. Every discount should serve a clear purpose: to unlock more revenue from the specific customer in front of you.
That requires the sales team to understand customer behaviour, buying patterns, price sensitivity, and potential growth. The discount must be tailored to each case. If a customer normally buys 500 units, offer an incentive to get them to 750. If they are already buying 10,000 units per quarter, offer a structured rebate if they can commit to 15,000 across two product lines.
The goal is to craft offers that are achievable, attractive, and profitable. The discount should feel like a win to the customer, but only because it is a win for the supplier too.
The Real Cost of Blanket Discounting
Giving away margin has long-term consequences. It erodes profitability and sets expectations that are hard to reverse. Worse, it trains customers to expect deals rather than value.
When a company applies volume discounts without analysis, it loses visibility over what is driving performance. Did sales go up because of the discount? Or was demand going to rise anyway? Did we sell more units, or did we just reduce revenue per unit?
Without clear data and intent, it becomes difficult to answer these questions, and incredibly challenging to improve performance.
Strategic Implications for Manufacturing and Engineering-Led Firms
In manufacturing-led businesses, especially in sectors like marine technology and precision engineering, the cost structure and product differentiation are completely different from fast-moving consumer goods.
Volume in these markets can mean large contract-based purchases with significant delivery and service obligations. Applying discounts without regard to lifetime value, cost to serve, or client profitability is especially dangerous.
Moreover, engineering-led firms often carry reputations for quality and reliability. When those brands start offering aggressive pricing, customers may start to question the value. Are we dealing with a premium provider, or is this just another commodity supplier?
It is far better to have a pricing strategy that reflects value, encourages additional demand, and protects strategic positioning.
Final Thought
Volume discounting should not be a reflex; it should be a deliberate lever. When used properly, it can be a powerful tool to encourage incremental purchases, drive margin-accretive growth, and create stronger customer relationships.
However, that requires discipline. It means moving beyond the idea that bigger customers automatically deserve better pricing. It requires sales teams to understand the customer’s needs, buying behaviour, and potential. Moreover, offer pricing that unlocks more, not just rewards what already exists.
With this article, my intention is not to argue against discounting. It is more about prompting some thoughts about intelligent discounting.
Pricing is one of the most strategic decisions any company makes. When done right, it builds strength. When done poorly, it erodes value faster than any cost line ever could.
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