Discount approval is the control that determines who may authorize a price reduction and under which commercial conditions. It protects margin, pricing consistency and contract authority while allowing justified exceptions.
What triggers approval?
- Discount above a role-based threshold
- Margin below an approved floor
- Nonstandard volume, term or bundle conditions
- Stacking of promotions or rebates
- Manual price overrides
- Strategic or competitive exceptions
How does a discount affect gross margin?
If list price is $10,000 and cost is $6,000, gross margin before discount is ($10,000 − $6,000) ÷ $10,000 = 40%. A 15% discount reduces revenue to $8,500, so gross margin becomes ($8,500 − $6,000) ÷ $8,500 = 29.4%.
Illustrative approval calculation
| Calculation step | Amount | Result |
|---|---|---|
| List price | $10,000 | Approved catalog price |
| Discount | 15% | $1,500 reduction |
| Net price | $8,500 | $10,000 − $1,500 |
| Cost | $6,000 | Cost basis |
| Gross margin | 29.4% | ($8,500 − $6,000) ÷ $8,500 |
If the approval policy requires finance review below 30% gross margin, this quote must be escalated even though the discount itself is only 15%.
What should an approver review?
Review customer scope, quantity, term, competitive evidence, cost basis, margin, precedent, renewal effect and any other concessions. The decision should consider the complete commercial package rather than the headline discount alone.
What should the system record?
Retain the quote version, list and net prices, cost basis, calculated metrics, request reason, approval threshold, approver authority, comments and timestamp. Reapproval should be required when material terms change.
