ocket price is a term used in business to represent the actual price that a company ends up receiving for a product after accounting for all discounts, allowances, rebates, and other incentives offered to the customer.
In other words, the pocket price is the net price that literally “goes into the pocket” of the selling company. It’s a crucial figure because it directly impacts a company’s profitability.
For example, let’s say a company lists a product for $100 (this is the list price). However, to secure a deal, the company offers a volume discount of 10%, a seasonal discount of 5%, and an additional rebate of $5 to the customer. The pocket price will be the list price minus all these discounts and rebates.
Using the numbers from this example:
Pocket Price = List Price – Volume Discount – Seasonal Discount – Rebate
Pocket Price = $100 – ($100 * 10%) – ($100 * 5%) – $5
Pocket Price = $100 – $10 – $5 – $5 = $80
So, even though the list price of the product was $100, the actual price that the company receives (the pocket price) is $80.
Example of Pocket Price
Let’s use a real-world example. Suppose you are a wholesaler of electronics goods and you have a retail client who places large orders regularly.
Let’s say a television set is listed at $1000. Because this retailer is a loyal customer and often orders in large quantities, you provide a volume discount of 10%. On top of that, you’re currently running a special promotion that provides an additional 5% discount on all orders.
So, to calculate the pocket price, you need to subtract these discounts from the list price:
Volume discount = $1000 * 10% = $100
Promotional discount = $1000 * 5% = $50
Now, subtract these discounts from the list price to find the pocket price:
Pocket Price = List Price – Volume Discount – Promotional Discount
Pocket Price = $1000 – $100 – $50 = $850
So, even though the list price of the television set is $1000, after considering the volume and promotional discounts, the price you actually “pocket” is $850. This is the revenue you’re going to recognize from the sale of this television to this specific customer, given these specific circumstances.